The predictive content of co-movement in non-energy commodity price changes

  1. Poncela Blanco, Pilar
  2. Senra Díaz, Eva
  3. Sierra Suárez, Lya Paola
Notas técnicas: [continuación de Documentos de Trabajo FUNCAS]

ISSN: 1988-8767

Year of publication: 2014

Issue: 747

Type: Working paper

More publications in: Notas técnicas: [continuación de Documentos de Trabajo FUNCAS]


The predictive content of the co-movement either of a large range of commodities, or the co-movement within a specific category of raw material prices is evaluated. This paper reports success in using small scale factor models in forecasting the nominal price of non-energy commodity changes on a monthly basis. Therefore, communalities of commodities in the same category, estimated by the Kalman filter, can be useful for forecasting purposes. Notably, category communalities in oils and protein meals, as well as metals seem to substantially improve the forecasting performance of the random walk model. In contrast, co-movement in extensive data of commodity prices, estimated through Principal Components, has poor predictive power over non-energy commodity prices, compared to the small-scale factors.