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Global vs Sectoral Factors and the Impact of the Financialization in Commodity Price Changes

Author

Listed:
  • Pilar Poncela

    (Joint Research Centre
    Universidad Autónoma de Madrid)

  • Eva Senra

    (Universidad de Alcalá)

  • Lya Paola Sierra

    (Pontificia Universidad Javeriana)

Abstract

Commodity prices influence price levels of a broad range of goods and, in the case of some developing economies, production and export activity. Therefore, information about future commodity inflation is useful for central banks, forward-looking policy-makers, and economic agents whose decisions depend on their expectations about it. After 2004, we have witnessed the so-called financialization of the commodity markets, which might induce greater communalities among commodity prices. This paper reports evidence on the relevance of the forecasting content of co-movement after 2004. With the use of large and small scale factor models we find that for the short run, in addition to dynamics, sectoral communality has relevant predictive content. For 12 months ahead, dynamics lose relevance while communality remains relevant.

Suggested Citation

  • Pilar Poncela & Eva Senra & Lya Paola Sierra, 2020. "Global vs Sectoral Factors and the Impact of the Financialization in Commodity Price Changes," Open Economies Review, Springer, vol. 31(4), pages 859-879, September.
    • Handle: RePEc:kap:openec:v:31:y:2020:i:4:d:10.1007_s11079-019-09564-4
    DOI: 10.1007/s11079-019-09564-4
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    References listed on IDEAS

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    Cited by:

    1. Poncela, Pilar & Ruiz, Esther & Miranda, Karen, 2021. "Factor extraction using Kalman filter and smoothing: This is not just another survey," International Journal of Forecasting, Elsevier, vol. 37(4), pages 1399-1425.

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    More about this item

    Keywords

    Commodity prices; Co-movement; Dynamic factor models; Global factor; Out-of-sample forecast; Sectoral factors;
    All these keywords.

    JEL classification:

    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • F00 - International Economics - - General - - - General

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