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Common factors of commodity prices

Author

Listed:
  • Simona Delle Chiaie
  • Laurent Ferrara
  • Domenico Giannone
Abstract
In this paper, we extract latent factors from a large cross‐section of commodity prices, including fuel and non‐fuel commodities. We decompose each commodity price series into a global (or common) component, block‐specific components, and a purely idiosyncratic component. We find that the bulk of the fluctuations in commodity prices are well summarized by a single global factor. This global factor is closely related to fluctuations in global economic activity and, since the early 2000s, has become more important in explaining variations in commodity prices.

Suggested Citation

  • Simona Delle Chiaie & Laurent Ferrara & Domenico Giannone, 2022. "Common factors of commodity prices," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 37(3), pages 461-476, April.
    • Handle: RePEc:wly:japmet:v:37:y:2022:i:3:p:461-476
    DOI: 10.1002/jae.2887
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    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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