NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Commodity Connectedness

Francis X. Diebold, Laura Liu, Kamil Yilmaz

NBER Working Paper No. 23685
Issued in August 2017
NBER Program(s):The Asset Pricing Program, The Economic Fluctuations and Growth Program, The International Finance and Macroeconomics Program

We use variance decompositions from high-dimensional vector autoregressions to characterize connectedness in 19 key commodity return volatilities, 2011-2016. We study both static (full-sample) and dynamic (rolling-sample) connectedness. We summarize and visualize the results using tools from network analysis. The results reveal clear clustering of commodities into groups that match traditional industry groupings, but with some notable differences. The energy sector is most important in terms of sending shocks to others, and energy, industrial metals, and precious metals are themselves tightly connected.

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Document Object Identifier (DOI): 10.3386/w23685

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