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Global commodity cycles and linkages: a FAVAR approach

Abstract

In this article, we examine linkages across non-energy commodity price developments by means of a factor-augmented VAR model (FAVAR). From a set of non-energy commodity price series, we extract two factors, which we identify as common trends in metals and food prices. These factors are included in a FAVAR model together with selected macroeconomic variables, which have been associated with developments in commodity prices. Impulse response functions confirm that exchange rates and economic activity affect individual non-energy commodity prices, but we fail to find strong spillovers from oil to non-oil commodity prices or an impact of the interest rate. In addition, we find that individual commodity prices are affected by common trends captured by the food and metals factors.

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Correspondence to Marco J. Lombardi.

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Lombardi, M.J., Osbat, C. & Schnatz, B. Global commodity cycles and linkages: a FAVAR approach. Empir Econ 43, 651–670 (2012). https://doi.org/10.1007/s00181-011-0494-8

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Keywords

  • Oil price
  • Commodity prices
  • Exchange rates
  • Globalisation
  • FAVAR

JEL Classification

  • E3
  • F3