What has caused the surge in global commodity prices and strengthened cross-market linkage?

TLDR: In this article, the authors identify the main causes of fluctuations in global commodity markets, by using the historical decomposition of VAR models, and provide quantitative evidence that the post-2009 commodity boom was driven by growing physical demand for commodities amid global economic recovery and globally accommodative monetary conditions.

Abstract: Global commodity prices have been on an increasing trend since 2009, while their correlation with stock prices has risen. This paper attempts to identify the main causes of fluctuations in global commodity markets, by using the historical decomposition of VAR models. It then provides quantitative evidence that the post-2009 commodity boom was driven by (1) growing physical demand for commodities amid global economic recovery and (2) globally accommodative monetary conditions. This result contrasts sharply with the commodity boom that occurred up to summer 2008, when a "flight to simplicity" led to substantial capital flows into commodity markets from other asset markets such as securitization and stock markets. Moreover, we find quantitative evidence that an increase in cross-market linkage between commodity and stock markets was caused by the markets' increased comovements due to large fluctuations in the global economy during the financial crisis as well as by the "financialization of commodities," that is, financial investors are increasingly treating commodities as an investment asset class.