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What has caused the surge in global commodity prices and strengthened cross-market linkage?

Author

Listed:
  • Takuji Kawamoto

    (Bank of Japan)

  • Takeshi Kimura

    (Bank of Japan)

  • Kentaro Morishita

    (Bank of Japan)

  • Masato Higashi

    (Bank of Japan)

Abstract

Global commodity prices have been on an increasing trend since 2009, while their correlation with stock prices has risen. This paper attempts to identify the main causes of fluctuations in global commodity markets, by using the historical decomposition of VAR models. It then provides quantitative evidence that the post-2009 commodity boom was driven by (1) growing physical demand for commodities amid global economic recovery and (2) globally accommodative monetary conditions. This result contrasts sharply with the commodity boom that occurred up to summer 2008, when a "flight to simplicity" led to substantial capital flows into commodity markets from other asset markets such as securitization and stock markets. Moreover, we find quantitative evidence that an increase in cross-market linkage between commodity and stock markets was caused by the markets' increased comovements due to large fluctuations in the global economy during the financial crisis as well as by the "financialization of commodities," that is, financial investors are increasingly treating commodities as an investment asset class.

Suggested Citation

  • Takuji Kawamoto & Takeshi Kimura & Kentaro Morishita & Masato Higashi, 2011. "What has caused the surge in global commodity prices and strengthened cross-market linkage?," Bank of Japan Working Paper Series 11-E-3, Bank of Japan.
    • Handle: RePEc:boj:bojwps:11-e-3
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    Cited by:

    1. Yao, Wei & Alexiou, Constantinos, 2024. "On the transmission mechanism between the inventory arbitrage activity, speculative activity and the commodity price under the US QE policy: Evidence from a TVP-VAR model," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 1054-1072.
    2. Huchet, Nicolas & Fam, Papa Gueye, 2016. "The role of speculation in international futures markets on commodity prices," Research in International Business and Finance, Elsevier, vol. 37(C), pages 49-65.
    3. Kentaro Iwatsubo & Satoru Ogasawara, 2019. "Crude Oil Prices, Capital Flows, and Emerging Economies," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 15(1), pages 35-68, July.
    4. Lei Pan & Svetlana Maslyuk-Escobedo & Vinod Mishra, 2019. "Carry Trade Returns and Commodity Prices under Capital and Interest Rate Controls: Empirical Evidence from China," Monash Economics Working Papers 16-18, Monash University, Department of Economics.
    5. Haase, Marco & Seiler Zimmermann, Yvonne & Zimmermann, Heinz, 2016. "The impact of speculation on commodity futures markets – A review of the findings of 100 empirical studies," Journal of Commodity Markets, Elsevier, vol. 3(1), pages 1-15.

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