Pilar Poncela Blanco, Eva Senra Díaz, Lya Paola Sierra Suárez
The purpose of this paper is to improve the empirical evidence on commodity prices in various dimensions. First, we attempt to identify the extent of co-movements in 44 monthly non-energy commodity price series in order to ascertain whether the increase in co-movement is a recent term phenomenon. Second, we attempt to determine the role of uncertainty in determining co-movements between non-energy prices in the short run. We diagnose the overall co-movement using a Dynamic Factor Model estimated by principal components. A Factor-Augmented Vector Autoregressive (FAVAR) approach is used to assess the relationship of fundamentals, financial and uncertainty variables with the co-movement in commodity prices. We find a greater synchronization among raw materials since December 2003. Since that date, uncertainty has played an important role in determining short-run fluctuation in nonenergy raw material prices.
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