Variation In Commodity Prices Research Articles

Common factors of commodity prices

SummaryIn 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.

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 shock. We find that the bulk of the uctuations in commodity prices is well summarized by a single global factor. This global factor is closely related to fluctuations in global economic activity and its importance in explaining variations in commodity prices has increased since the beginning of the 2000s, especially for oil.

Impact of a carbon tax on the Chilean economy: A computable general equilibrium analysis

In 2009, the government of Chile announced their official commitment to reduce national greenhouse gas emissions by 20% below a business-as-usual projection by 2020. Due to the fact that an effective way to reduce emissions is to implement a national carbon tax, the goal of this article is to quantify the value of a carbon tax that will allow the achievement of the emission reduction target and to assess its impact on the economy.The approach used in this work is to compare the economy before and after the implementation of the carbon tax by creating a static computable general equilibrium model of the Chilean economy. The model developed here disaggregates the economy in 23 industries and 23 commodities, and it uses four consumer agents (households, government, investment, and the rest of the world). By setting specific production and consumptions functions, the model can assess the variation in commodity prices, industrial production, and agent consumption, allowing a cross-sectoral analysis of the impact of the carbon tax. The benchmark of the economy, upon which the analysis is based, came from a social accounting matrix specially constructed for this model, based on the year 2010.The carbon tax was modeled as an ad valorem tax under two scenarios: tax on emissions from fossil fuels burned only by producers and tax on emissions from fossil fuels burned by producers and households. The abatement cost curve has shown that it is more cost-effective to tax only producers, rather than to tax both producers and households. This is due to the fact that when compared to the emission level observed in 2010, a 20% emission reduction will cause a loss in GDP of 2% and 2.3% respectively. Under the two scenarios, the tax value that could lead to that emission reduction is around 26 US dollars per ton of CO2-equivalent. The most affected productive sectors are oil refinery, transport, and electricity — having a contraction between 7% and 9%. Analyzing the electricity sector by energy source, the production of electricity from fossil fuels will decrease by 11%, but electricity from renewables will increase by 43%. Electricity producers will pass the cost of the carbon tax to the consumer by increasing the price of electricity by 8%.The findings of this paper will allow policy makers to take better and more informed decisions, by providing a cross-sectoral analysis of the impact on the economy of reducing emissions by 20% by implementing a national carbon tax.

Factoring emerging markets into the relationship between global liquidity and commodities

Purpose– What caused the mid-2000s world commodity price “bubble” and the recent commodity price growth? Some have suggested that rapid global industrial growth over the past decade is the key driver of price growth. Others have argued that high commodity prices are a result of excessively loose monetary policy. The purpose of this paper is to extend the current research in this area by incorporating emerging economies, the BRIC (Brazil, Russia, India, and China) nations specifically, into global measures.Design/methodology/approach– The paper uses a vector error correction (VEC) model and computes variance decomposition and impulse response functions (IRFs).Findings– The empirical analysis suggest that the “demand channel” plays a large part in explaining commodity price growth whether BRIC countries are included or excluded from the analysis. However, excess liquidity may also play a part in explaining price growth. In addition, factoring in BRIC country data leads to the conclusion that unexpected movements in liquidity eventually explain more of the variation in commodity prices than unexpected demand shocks. This specific result is not caught in the sample that only incorporates advanced economies.Research limitations/implications– Despite the theory of Frankel (1986) and the findings of previous global vector autoregression (VAR)/VEC analyses, interest rates, especially shocks, have a minimal impact on consumer and commodity prices. Perhaps future studies should include an interest rate in their analysis that more closely reflects interest rates associated with information used by commodity consumers, producers, and investors. Some analyses such as Hua (1998) use the LIBOR rate, which is highly associated with developed financial markets in the advanced economies. Data quality and availability in the BRIC countries severely limited the length of the time period analyzed and the frequency of the data. Finding longer sample periods or higher frequency data can help to minimize bias in future research. In this paper, monetary aggregates and short-term interest rates were loosely connected to monetary policy. It would also be interesting to directly examine how special programs like quantitative easing influenced global liquidity.Practical implications– The results of the IRFs and variance decompositions confirm some of the previous findings reported in Belkeet al.(2010), Hua (1998), and Swaray (2008) that suggest that positive shocks to liquidity positively impact commodity prices. In particular, both samples suggest that this is a short-run impact that occurs after two quarters. However, in the sample that includes information about liquidity from BRIC countries, excess liquidity positively affects commodity prices after six and seven quarters as well. The insignificant results of Granger causality tests of the effect of monetary variables on commodity prices suggests that this relationship is limited to movements in liquidity that is unexpected by agents in the system. These “shocks” could be attributed to a number of factors including exogenous monetary policy changes such as the unprecedented responses by the Federal Reserve during and after the 2008 global financial crisis.Social implications– First, empirical research that claims to analyze relationships at a “global” level needs to account for the growing influence of emerging economies and not simply the advanced economies. Otherwise, results may be biased as they were when too much of the forecast error variance in commodity prices was attributed to shocks to output when it should have been attributed to shocks to excess liquidity. Second, those who criticize expansionary monetary policy in the advanced countries, especially by the Federal Reserve, for pushing up commodity prices should also direct their attention toward monetary authorities elsewhere, especially the BRIC countries, since information on excess liquidity from these countries adds to the influence that global excess liquidity has on commodity prices. Third, monetary policymakers in the advanced countries need to closely monitor liquidity in the BRIC countries, since the discrepancies between the ALL and ADV samples suggests that BRIC excess liquidity affects commodity prices in a way that cannot be captured by examining advanced country data alone.Originality/value– No other paper in this area looked at the BRIC countries.

Varying pasture growth and commodity prices change the value of traits in sheep breeding objectives

Breeding programs for livestock require economic weights for traits that reflect the most profitable animal in a given production system. Economic weights are commonly based on average conditions. In pasture based livestock production systems the cost of feed is an important profit driver, but availability of feed from pasture can vary greatly within and between years. Additionally, the price of supplementary feed during periods of feed shortage and the prices for meat and wool vary between years. Varying prices and pasture growth can change the optimal management of the flock affecting profitability. This paper investigates how variation in commodity prices and pasture growth affect the economic values of traits in the breeding objective. We modelled a sheep farm with a self-replacing Merino flock bred for wool and meat in a Mediterranean environment. We optimised management decisions across 5years using dynamic recursive analysis to maximise profit when commodity prices and pasture growth varied annually. Actual pasture growth and wool, meat, and grain prices from 2005 to 2009 were used. Management could adapt to varying pasture growth and commodity prices by changing sheep numbers, age structure of the flock and amount of grain fed to sheep. The economic value of seven traits in the breeding objective were compared for a scenario with average pasture growth and commodity prices over years and a scenario with varying pasture growth and commodity prices over years. Variation in pasture growth and commodity prices decreased average profit and increased the economic value of all breeding goal traits compared to the average scenario. The order of importance of traits stayed the same between varying and average scenarios but the relative importance of traits changed. The economic values that increased the most were for traits that had increased profit with the smallest impact on energy requirements such as yearling live weight, longevity and fibre diameter. Our results showed that it is important to account for variation in feed availability and commodity prices when determining the expected profit and economic values for traits. The results also suggest that whereas variation in pasture growth and commodity prices between years makes the farming operations less profitable, these changing conditions increase the genetic variation in profitability of sheep. Therefore, genetic improvement has more value relative to scenarios where pasture feed supply and prices are constant.

Fatores que promovem discordâncias entre fisco e contribuinte a respeito da comprovação de hedge

This paper investigates factors that cause disagreement between tax authorities and taxpayers in regard to hedge validation in financial operations, which is a legal requeriment for the deducibility of losses over the income tax. A case-study, which was carried out in an exporting company that had been fined by Receita Federal do Brasil in 2008, showed that the attested measure of exposure to the ex-ante risk of variation in commodity prices and in exchange was not enough to avoid the aggravation of losses given the non-deducibility of such measure. This is due to the lack of management criteria as well as the lack of accounting criteria standarts, which was corroborated in documentary research and content analysis over decisions made by the Receita Federal do Brasil on this issue from 1999 to 2010.

Indoor Air Pollution, Child Health and Fuel Costs in Guatemala

The use of biomass fuels (such as wood, cow dung, and crop residues) for household energy is quite prevalent across the developing world. Unfortunately, these sources of fuel are associated with a high degree of indoor air pollution which, in turn, has been linked to a variety of diseases. Indeed, the incidence of acute lower respiratory tract infections, which are the leading cause of death among children aged 0-5, is often associated with household fuel choices and indoor pollution. To reduce negative health and environmental effects, some policymakers have suggested the use of fuel subsidies in order to encourage households to switch from traditional biomass to cleaner fuels such as kerosene, electricity, and gas. This policy suggestion assumes that households are very sensitive to fuel prices and availability. The subject of this paper is to study the salience of fuel shadow prices (i.e., monetary and opportunity costs) on household cooking fuel decisions and, consequently, child respiratory health. Guatemala provides an interesting environment in which to study fuel costs given the wide variety of fuel choices observed across households and significant regional variation in commodity prices and penetrance of fuel markets for clean fuels (a proxy for local availability). We begin by estimating reduced form relationships between community fuel prices, fuel markets and forest cover (to proxy the availability of firewood) and household fuel choice. We also estimate reduced form models for respiratory health among children aged 0-5. Identification is a key issue here: it is possible that fuel prices or fuel market presence is correlated with unobserved community level characteristics that jointly determine child respiratory systems or cooking fuel choice. We address this issue in three ways. First, we compare the distribution of observable community and household level characteristics in areas where fuel markets for clean fuels are available to those where these are not present. We conduct a similar comparison for fuel prices. Second, we estimate reduced form models for child intestinal symptoms, receipt of prenatal care and other health symptoms and behaviors. A significant relationship between fuel prices and these other outcomes conditional on other relevant and observable community characteristics would speak towards endogeneity. Third, we exploit the seemingly random variation in the time of household interview and construct spot fuel market prices for that week/month by interacting the department of residence with world real crude oil price. We then use this new data series in estimating the reduced form models. Finally, we use the fuel price variables as instruments to look at the effect of predicted fuel choice on the incidence of respiratory symptoms, height-for-age, and weight-for-height among children aged 0-5. This is done in anticipation of on-going randomized experiments seeking to quantify the causal effect of household cooking fuels on respiratory health. The preliminary results indicate that fuel prices and availability are strongly associated with household fuel choice and child respiratory health. The identification and robustness checks reveal that this relationship likely causal: the fuel cost variables are not associated with other health conditions and behaviors or other community level characteristics. Additionally, using world fuel prices interacted with department of residence, an identification strategy which relies on plausibly random time of survey, yields similar results.

Regional Differences in Manufacturing Performance: The Case of the Canadian Food and Beverage Industry, 1961–84

In this paper the performance of the food and beverage industry in six regions of Canada between 1961 and 1984 is examined. The impact of spatial variations in commodity prices and techniques of production on the rate of profit are separated. Significant regional disparities in both production and market performance exist within the food sector and lend little support to the industry-mix thesis. Price variations are the principal cause of regional differences in manufacturing profitability. The rate of profit in the food industry declined in all regions, though at a slower rate than in manufacturing as a whole.

An Analysis of the Farmer‐Owned Reserve Program, 1977–82

AbstractAn econometric model of the U.S. agricultural sector is utilized to examine the effects of the Farmer‐Owned Reserve Program on crop and livestock production and prices, farm income, crop carry‐over levels, and government outlays. The program has had a positive impact on commodity prices and farm income but has not significantly reduced the annual variation in commodity prices. It also increased government outlays for agricultural commodity programs, but all of the increase is potentially recoverable. The continued use of the FORP to enhance commodity prices likely will lead to excessive government outlays in the long run.