Metal prices and the business cycle

Metal price fluctuations have recently been of interest not only because of their cyclical volatility but also of their interaction with business cycl es. A related issue is whether metal prices move together sufficiently to c ollectively reflect macroeconomic influences. Correlation or the tendency f or prices to move together has been termed "comovement", where the commonal ity in prices reflects the tendency of commodity markets to respond to comm on business cycle and trend factors. Metal prices are known to respond to m acroeconomic influences and the latter might well explain the common factor which causes them to move together. Our goal is to provide an estimate of the common factor in metal prices and to relate this factor to important ma croeconomic influences. The prices we study are for aluminum, copper, tin, lead and zinc; the macroeconomic variables include industrial production, c onsumer prices; interest rates, stock prices, and exchange rates. Our resul ts confirm that the common factor in metal prices can be related to such ma croeconomic influences. (C) 2000 Published by Elsevier Science Ltd. All rig hts reserved.