Working Paper: CEPR ID: DP12767
Authors: 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 shock. We find that the bulk of the uctuations in commodity prices is well summarized by a single global factor. This global factor is closely related to fluctuations in global economic activity and its importance in explaining variations in commodity prices has increased since the beginning of the 2000s, especially for oil.
Keywords: commodity prices; dynamic factor models; forecasting
JEL Codes: C51; C53; Q02
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| global factor (F29) | commodity prices (Q02) |
| global economic activity (F69) | commodity prices (Q02) |
| global factor (F29) | global economic activity (F69) |
| global factor (F29) | oil prices (L71) |
| global factor (F29) | non-fuel commodities (Q02) |
| local factors (F29) | commodity prices (Q02) |
| idiosyncratic shocks (D89) | commodity prices (Q02) |