DEEP DIVE INTO COMMODITY MARKETS: EXPLORING THE COMMODITY–INDUSTRIAL PRODUCTION NEXUS

  • JULIEN CHEVALLIER IPAG Business School, France.
  • FLORIAN IELPO Lombard Odier Asset Management & University Paris 1 (CES), France.
Keywords: Cointegration, Commodities, Industrial Production, Structural Break

Abstract

This article explores the commodity–industrial production nexus. More precisely, we assess the cointegration relationships between commodity markets and industrial production during 1993-2011, with an overview for several countries: the USA, the EU, Australia, China, Brazil, Canada, Germany. First, we explore the descriptive statistics and unit root tests of the dataset. Second, we develop two kinds of cointegration analyses (e.g. with/without structural break) between commodities on the one hand, and industrial production indices on the other hand. Third, we conclude on the main results achieved by this econometric procedure. The key contribution of our paper is to revisit the link between industrial production and commodity prices, by using an econometric methodology incorporating structural breaks, and by using a very recently updated dataset. By carrying out a systematic comparison between our results and papers previously published in this literature, we gain a wealth of insights.

References

REFERENCES

Awokuse, TO., Yang, J. 2003. T he informational role of commodity prices in formulating monetary policy: a reexamination. Economics Letters 79:219-224

Ai, C., Chatrath, A., Song, F. 2006. On the comovement of commodity prices. American Journal of Agricultural Economics 88(3):574-588

Andrade, P., Bruneau, C. 2000. Cointegration with structural breaks: from the single equation analysis to the multivariate approach with application to US money demand. In 8th World Congress of the Econometric Society, Econometric Society, USA. Available at:
http://www.econometricsociety.org/meetings/wc00/pdf/1605.pdf

Arranz, MA., Escribano, A. 2000. Cointegration testing under structural breaks: A robust extended error correction model. Oxford Bulletin of Economics and Statistics 62(1), 23-52.

Bhar, R., Hamori, S. 2008. Information content of commodity futures prices for monetary policy. Economic Modelling 25:274-283

Bloch, H., Dockery, AM., Sapsford, D. 2004. Commodity prices, wages, and U.S. inflation in the twentieth century. Journal of Post Keynesian Economics 26(3):523-545

Bloch, H., Dockery, AM., Sapsford, D. 2006. Commodity Prices and the Dynamics of Inflation in Commodity-Exporting Nations: Evidence from Australia and Canada. Economic Record 82:S97-S109

Cheung, C., Morin, S. 2007. The Impact of Emerging Asia on Commodity Prices. Bank of Canada, Working Paper #2007-55, Canada

Cody, BJ., Mills, LO. 1991. The Role of Commodity Prices in Formulating Monetary Policy. Review of Economics and Statistics 73(2):358-365

Cunado, J., de Gracia, FP., 2003. Do oil price shocks matter? Evidence for some European countries. Energy Economics 25:137-154

Dickey, DA., Fuller, WA. 1981. Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root. Econometrica 49:1057-1072

Greene, WH. 2011. Econometric Analysis. Prentice Hall, 7 edition, USA

Hamilton, JD. 1996. Time Series Analysis. Princeton University Press, USA

Hamori, S. 2007. The information role of commodity prices in formulating monetary policy: some evidence from Japan. Economics Bulletin 5(13):1-7

Hua, P. 1998. On Primary Commodity Prices: The Impact of Macroeconomic/Monetary Shocks. Journal of Policy Modeling 20(6):767-790

Johansen, S., Juselius, K. 1990. Maximum likelihood estimation and the demand for money inference on cointegration with application. Oxford Bulletin of Economics and Statistics 52:169-210

Johansen, S. 1988. Statistical analysis of cointegration vectors. Journal of Economic Dynamics and Control 12:231-254

Johansen, S. 1991. Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models. Econometrica 59:1551-1580

Kwiatkowski, DP., Phillips, PCB., Schmidt, P., Shin, Y. 1992. Testing the Null Hypothesis of Stationnarity Against the Alternative of the Unit Root: How Sure are we that Economic Time Series are Non Stationary? Journal of Econometrics 54:159-178

Labys, WC., Maizels, A. 1993. Commodity Price Fluctuations and Macro-economic Adjustments in the Developed Countries. Journal of Policy Modeling 15(3):335-352

Labys, WC., Achouch, A., Terraza, M. 1999. Metal prices and the business cycle. Resources Policy 25:229-238

Lütkepohl, H., Saikkonen, P., Trenkler, C. 2004. Testing for the cointegrating rank of a VAR with level shift an unknown time. Econometrica 72:647-662

Pfaff, B. 2008. Analysis of Integrated and Cointegrated Time Series with R. Springer, New York Dordrecht Heidelberg London, UK

Phillips, PCB., Peron, P. 1988. Testing for a unit root in time series regression. Biometrika 75:335-346

Pieroni, L., Ricciarelli, M. 2005. Testing rational expectations in primary commodity markets. Applied Economics 37:1705-1718

Trenkler, C. 2003. A new set of critical values for systems cointegration tests with a prior adjustment for deterministic terms. Economics Bulletin 3:1-9
Published
2015-11-19
Section
Articles