Working Paper: NBER ID: w2671
Authors: Robert S. Pindyck; Julio J. Rotemberg
Abstract: This paper tests and confirms the existence of a puzzling phenomenon - the prices of largely unrelated raw commodities have a persistent tendency to move together. We show that this comovement of prices is well in excess of anything that can be explained by the common effects of past, current, or expected future values of macroeconomic variables such as inflation, industrial production, interest rates, and exchange rates. These results are a rejection of the standard competitive model of commodity price formation with storage.
Keywords: Commodity Prices; Comovement; Macroeconomic Variables; Latent Variables
JEL Codes: D40; E31; G13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| excess comovement (C10) | prices of largely unrelated raw commodities (Q02) |
| macroeconomic factors (E66) | excess comovement (C10) |
| price changes (P22) | correlations across commodities (C10) |
| longer time intervals (C41) | increase in correlations (C10) |
| latent variables (C39) | excess comovement (C10) |
| economic fundamentals (E25) | excess comovement (C10) |