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Commodity Booms and Busts

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  • Colin A. Carter

    ()
    (Department of Agricultural and Resource Economics, University of California, Davis, California 95616
    Giannini Foundation of Agricultural Economics, University of California)

  • Gordon C. Rausser

    ()
    (Giannini Foundation of Agricultural Economics, University of California
    Department of Agricultural and Resource Economics, University of California, Berkeley, California 94720)

  • Aaron Smith

    ()
    (Department of Agricultural and Resource Economics, University of California, Davis, California 95616
    Giannini Foundation of Agricultural Economics, University of California)

Abstract

Periodically, the global economy experiences great commodity booms and busts, characterized by a broad and sharp comovement of commodity prices. There have been two such episodes since the Korean War. The first event peaked in 1974 and the second in 2008, 34 years apart. Both created major economic and political shocks, including fallen governments and human suffering due to high food prices. Each occurrence raised serious concerns over food and energy security and led to more government intervention in the commodity markets. Although there is no simple explanation for what causes such complex events, they do share similar characteristics. We find at the core of these cycles a set of contemporaneous supply and demand surprises that coincided with low inventories and that were magnified by macroeconomic shocks and policy responses. In the next few decades, the world faces the prospect of continued increases in the demand for commodities and greater uncertainty about supply. However, because market participants are likely to respond by increasing inventory holdings and investing in new technologies, we see no reason to expect an increase in the frequency of dramatic commodity booms and busts.

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Bibliographic Info

Article provided by Annual Reviews in its journal Annual Review of Resource Economics.

Volume (Year): 3 (2011)
Issue (Month): 1 (October)
Pages: 87-118

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Handle: RePEc:anr:reseco:v:3:y:2011:p:87-118

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Related research

Keywords: commodity markets; asset bubbles; oil prices; food price crisis; speculation; inventories;

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References

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Cited by:
  1. Lehecka, Georg, 2013. "Have food and financial markets integrated? An empirical assessment on aggregate data," 53rd Annual Conference, Berlin, Germany, September 25-27, 2013 156108, German Association of Agricultural Economists (GEWISOLA).
  2. Rausser, Gordon C. & de Gorter, Harry, 2013. "US policy contributions to agricultural commodity price fluctuations, 2006.12," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  3. Janda, Karel & Kristoufek, Ladislav & Zilberman, David, 2011. "Biofuels: Review of Policies and Impacts," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt5v1112qr, Department of Agricultural & Resource Economics, UC Berkeley.
  4. Martin Stürmer, 2013. "150 Years of Boom and Bust: What Drives Mineral Commodity Prices?," 2013 Papers pst529, Job Market Papers.
  5. Karel Janda & Ladislav Kristoufek & David Zilberman, 2011. "Modeling the Environmental and Socio-Economic Impacts of Biofuels," Working Papers IES 2011/33, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Oct 2011.

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