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The Macroeconomic Determinants of Commodity Prices

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  • Eduardo Borensztein

    (International Monetary Fund)

  • Carmen M. Reinhart

    (International Monetary Fund)

Abstract

The "traditional structural approach" to determining real commodity prices has relied exclusively on demand factors as the fundamentals that explain the behavior of commodity prices. This framework, however, has been unable to explain the marked and sustained weakness in these prices during the 1980s and 1990s. This paper extends that framework in two important directions: first, it incorporates commodity supply in the analysis, capturing the impact on prices of the sharp increase in commodity exports of developing countries during the debt crisis of the 1980s. Second, it takes a broader view of "world" demand that extends beyond the industrial countries and includes output developments in Eastern Europe and the former Soviet Union. The empirical results support these extensions, as both the fit of the model improves substantially and, more important, its ability to forecast increases markedly.

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal Staff Papers - International Monetary Fund.

Volume (Year): 41 (1994)
Issue (Month): 2 (June)
Pages: 236-261

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Handle: RePEc:pal:imfstp:v:41:y:1994:i:2:p:236-261

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  1. Angus Deaton & Guy Laroque, 1990. "On The Behavior of Commodity Prices," NBER Working Papers 3439, National Bureau of Economic Research, Inc.
  2. Arrau, Patricio & De Gregorio, Jose & Reinhart, Carmen & Wickham, Peter, 1991. "The demand for money in developing countries : assessing the role of financial innovation," Policy Research Working Paper Series 721, The World Bank.
  3. Jose De Gregorio & Peter Wickham & Patricio Arrau & Carmen Reinhart, 1991. "The Demand for Money in Developing Countries," IMF Working Papers 91/45, International Monetary Fund.
  4. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November.
  5. Graciela Kaminsky & Manmohan S. Kumar, 1990. "Efficiency in Commodity Futures Markets," IMF Staff Papers, Palgrave Macmillan, vol. 37(3), pages 670-699, September.
  6. Joshua Aizenman & Eduardo R. Borensztein, 1988. "Debt and Conditionality under Endogenous Terms of Trade Adjustment," NBER Working Papers 2582, National Bureau of Economic Research, Inc.
  7. Hansen, Lars Peter & Hodrick, Robert J, 1980. "Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis," Journal of Political Economy, University of Chicago Press, vol. 88(5), pages 829-53, October.
  8. Gilbert, Christopher L, 1989. "The Impact of Exchange Rates and Developing Country Debt on Commodity Prices," Economic Journal, Royal Economic Society, vol. 99(397), pages 773-84, September.
  9. Alogoskoufis, George & Varangis, Panos, 1992. "OECD fiscal policies and the relative prices of primary commodities," Policy Research Working Paper Series 955, The World Bank.
  10. Leamer, Edward E., 1985. "Vector autoregressions for causal inference?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 22(1), pages 255-304, January.
  11. Rudiger Dornbusch, 1985. "Policy and Performance Links between LDC Debtors and Industrial Nations," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(2), pages 303-368.
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