Non-energy Commodity Research Articles

Global Commodity Cycles and Linkages: A FAVAR Approach

In this paper we examine linkages across non-energy commodity price developments by means of a factor-augmented VAR model (FAVAR). From a set of non-energy commodity price series, we extract two factors, which we identify as common trends in metals and a food prices. These factors are included in a FAVAR model together with selected macroeconomic variables, which have been associated with developments in commodity prices. Impulse response functions confirm that exchange rates and of economic activity affect individual non-energy commodity prices, but we fail to find strong spillovers from oil to non-oil commodity prices or an impact of the interest rate. In addition, we find that individual commodity prices are affected by common trends captured by the food and metals factors.

Pass-through of External Shocks Along the Pricing Chain: A Panel Estimation Approach for the Euro Area

In this paper we analyse in a mark-up framework the pass-through of commodity price and exchange rate shocks to the main components of producer and consumer prices. Thereby we link movements in prices at the different production stages as firms set their prices as a mark-up over production costs. The empirical results reveal significant linkages between different price stages in the euro area. The overall results are roughly in line with the literature and provide insight into the effects at different stages of the production chain. Non-energy commodity prices turn out to be important determinants of euro area prices.

Sound Policies or Good Fortune: What Drives Emerging Market Spreads?

Since 2002, spreads on emerging market sovereign debt have fallen to historical lows. Given the close links between sovereign spreads, capital flows to emerging markets, and economic growth, understanding the factors driving sovereign spreads is very important. This paper uses factor analysis to study the extent to which emerging market bond spreads ‐ measured by JP Morgan’s EMBI Global index ‐ are driven by global factors, such as global liquidity or commodity prices, as opposed to country-specific macroeconomic fundamentals. Our results show that a common factor explains a substantial portion of the co-movements in emerging market spreads in the last decade. This factor is closely linked to global financial conditions, as well as to energy- and non-energy commodity prices. This factor, however, is not responsible for the reduction in EMBI spreads. Instead, emerging markets have benefited considerably from better macroeconomic policies. Therefore, a reversal of the benign global economic environment need not have a substantial negative impact on financing conditions for emerging markets. Bank index: Development economics, financial stability, international topics

Oil spills on other commodities

This paper examines the effect of crude oil prices on the prices of 35 internationally traded primary commodities for the 1960–2005 period. It finds that the pass-through of crude oil price changes to the overall non-energy commodity index is 0.16. At a more disaggregated level, the fertilizer index had the highest pass-through (0.33), followed by agriculture (0.17), and metals (0.11). The prices of precious metals also exhibited a strong response to crude oil price. In terms of individual commodities, the estimates of the food group exhibited remarkable similarity while those of raw materials and metals gave a mixed picture. The implication is that if crude oil prices remain high for some time, as most analysts expect, then the recent commodity price boom is likely to last much longer than earlier booms, at least for food commodities. The other commodities, however, are likely to follow diverging paths. On the methodological side, the results show that price indices, while providing useful summary statistics, they need to be supplemented by individual commodity analysis.

Consumption of biofuels rises in European Union

This paper examines the effect of crude oil prices on the prices of 35 internationally traded primary commodities for the 1960–2005 period. It finds that the pass-through of crude oil price changes to the overall non-energy commodity index is 0.16. At a more disaggregated level, the fertilizer index had the highest pass-through (0.33), followed by agriculture (0.17), and metals (0.11). The prices of precious metals also exhibited a strong response to crude oil price. In terms of individual commodities, the estimates of the food group exhibited remarkable similarity while those of raw materials and metals gave a mixed picture. The implication is that if crude oil prices remain high for some time, as most analysts expect, then the recent commodity price boom is likely to last much longer than earlier booms, at least for food commodities. The other commodities, however, are likely to follow diverging paths. On the methodological side, the results show that price indices, while providing useful summary statistics, they need to be supplemented by individual commodity analysis.

Are Alternatives the Next Bubble?

Institutional investors have been steadily increasing their allocation to alternative assets in recent years. The alternative world currently comprises of about $3 trillion in assets and spans a wide variety of asset classes and strategies such as real estate, private equity, commodities and hedge funds. Many investors now view alternative assets as an effective solution to the mediocre performance of traditional assets. Is this shift into alternatives just creating another bubble? This article investigates whether the recent performance of alternative assets will continue to persist in the future. The analysis uses three signals to detect a bubble: excess returns, expensive valuation, and speculative activity. The results show that among commodities, energy demonstrates most evidence of being a bubble whereas non-energy commodities show less evidence. The results also show that hedge funds and private equity do not demonstrate much evidence of being a bubble. <b>TOPICS:</b>Real assets/alternative investments/private equity, commodities, private equity, financial crises and financial market history

Energy, the Exchange Rate, and the Economy: Macroeconomic Benefits of Canada's Oil Sands Production

This paper describes potential benefits from Canada's expanding oil sands production, higher energy exports, and further improvements in the terms of trade. Contrary to the previous Canadian exchange rate literature, this paper finds that both energy and nonenergy commodity prices have an influence on the Canadian dollar, and some upward pressure on the exchange rate would therefore be expected. Model results suggest, however, that the impact on other tradable goods exports is limited.

Energy, the Exchange Rate, and the Economy: Macroeconomic Benefits of Canada'S Oil Sands Production

This paper describes potential benefits from Canada's expanding oil sands production, higher energy exports, and further improvements in the terms of trade. Contrary to the previous Canadian exchange rate literature, this paper finds that both energy and nonenergy commodity prices have an influence on the Canadian dollar, and some upward pressure on the exchange rate would therefore be expected. Model results suggest, however, that the impact on other tradable goods exports is limited.

Energy and carbon embodied in the international trade of Brazil: an input–output approach

All goods and services produced in an economy are directly and/or indirectly associated with energy use and, according to the type of fuel utilized, with CO 2 emissions as well. International trade is an important factor in shaping the industrial structure of a country and, consequently, in affecting a country's energy use and CO 2 emissions. This study applies input–output techniques to the Brazilian economy to evaluate the total impacts of international trade on its energy use and CO 2 emissions. A commodity-by-industry IO model in hybrid units (energy commodities in physical units and non-energy commodities in monetary units) is applied to the Brazilian economy in 1995. Results show that total energy embodied in the exports of non-energy goods of Brazil equals 831 PJ, while total carbon embodied is 13.5 MtC. These amounts are larger than the relevant amounts embodied in the imports of non-energy goods, respectively 679 PJ and 9.9 MtC. These figures are better understood by contrasting them with the total energy use and the corresponding total carbon emissions of the Brazilian economy in 1995 estimated by this work: 6781 PJ and 99.4 MtC, respectively. This means that international inflows and outflows of energy embodied in non-energy goods are in the order of 10 and 12% of the total energy use, while inflows and outflows of carbon embodied in non-energy goods are approximately 10 and 14% of the corresponding total carbon emissions of the Brazilian economy in 1995. The general picture is that Brazil is not only a net exporter of energy (153 PJ) and of carbon (3.6 MtC) embodied in the non-energy goods internationally traded by the country in 1995, but also that each dollar earned with exports embodied 40% more energy and 56% more carbon than each dollar spent on imports. These findings suggest that Brazilian policy-makers should be concerned about the extra impacts international trade policy may have on energy use and carbon emissions of the country.

Do SEC Disclosures Reduce Investors' Disagreements about Firms' Exposures to Market Risk?: A Trading Volume Analysis

This paper uses a trading volume analysis to examine the extent to which SEC-mandated disclosures make firms' market risk exposures more transparent to investors. We hypothesize that if the SEC's quantitative market risk disclosures reduce investor disagreements about firms' risk exposures, trading volume associated with market rate or price changes should decline after the disclosures are made public. We test for this relationship across three samples of firms that provide the mandated market risk disclosures for the first time in their 10-K reports. We find that the trading volume associated with changes in market rates or prices consistently declines after the 10-K filing for firms exposed to changes in interest rates and foreign currency exchange rates. In contrast, for firms exposed to commodity price changes, we find limited evidence of a decline in trading volume associated with changes in energy commodity prices, and no evidence of a decline in trading volume associated with changes in non-energy commodity prices. We explore several explanations for the weaker commodity price results, some relating to potential deficiencies in the reported commodity information and others to research design issues. In general, we interpret the results as providing evidence suggesting that the SEC's quantitative market risk disclosures reduce investor disagreements about firms' exposures to market risks.

Two-Stage Budgeting and Exact Aggregation

This paper presents an econometric model of demand for energy based on two-stage budgeting. The model provides own-price and cross-price elasticities of demand for energy and nonenergy commodities for the United States. These elasticities are estimated separately for households classified by family size, age of head, region, race, and urban versus rural residence. Price elasticities are presented conditional on total energy expenditure and total expenditure on all commodities. The model combines individual cross-section data with aggregate time series data and is based on exact aggregation over individual demand functions.

The quality of consumption: Some Australian evidence

The paper reports new estimates of Theil's index of the quality of consumption for four age groups and at two levels of affluence (income) for Australian households over the period 1975.IV to 1982.IV with special emphasis on the role played by energy and non-energy commodity groups. The evidence reveals an improvement in the quality of consumption of energy and energy-related goods and a quality deterioration in food, clothing and rent at all income levels and for all four age groups.

Energy cost of living, 1972–1973

The total energy requirements of household consumption of all goods and services have been calculated. Source for consumption data is the 1972–1973 Bureau of Labor Statistics (BLS) Consumer Survey. These are converted to energy terms using input-output energy intensities. The dependence of household energy use on expenditures, number of household members, degree of urbanization, and other demographic-economic factors, has been investigated graphically and statistically. The major factor determining energy requirement is expenditure level, but this can be affected by up to about 15% by variation in the other factors. In agreement with previous work based on the 1960–1961 BLS Survey, we find that 1. (1) the dependence of total energy requirements on expenditures shows a tendency to saturation; 2. (2) about one-half of the total energy of the average household is a result of the purchase of fuels and electricity while the other half results from the purchase of non-energy commodities. Application to the analysis of an energy tax and rebate program is discussed briefly.