Common factors of commodity prices

In this paper, we extract latent factors from a large cross-section of commodity prices, including fuel and non-fuel commodities. We decompose each commodity price series into a global (or common) component, block-specific components, and a purely idiosyncratic component. We find that the bulk of the fluctuations in commodity prices are well summarized by a single global factor. This global factor is closely related to fluctuations in global economic activity and, since the early 2000s, has become more important in explaining variations in commodity prices.

Automated summary

This paper finds that the majority of fluctuations in commodity prices can be well summarized by a single global factor, which is closely related to fluctuations in global economic activity and has become more important in explaining variations in commodity prices since the early 2000s.