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Structural Breaks And Long-Run Trends In Commodity Prices

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  • JAVIER LE�N

    (Inter-American Development Bank, Washington)

  • RAIMUNDO SOTO

    (ILADES-Georgetown University, Santiago, Chile)

Abstract

The purpose of this paper is twofold: first, it tests the Prebisch-Singer hypothesis of a secular deteriorating trend, and, second, presents a time-series analysis of the dynamics of commodity prices. Using annual data for the 1900-92 period and employing recently developed econometric techniques, we show that 17 of the 24 commodity prices studied present negative long-run trends, three are trendless and four have positive trends. Contrary to previous findings, this evidence suggests that although the Prebisch-Singer hypothesis is not a universal phenomenon, it is the case of most commodities. Moreover, the estimated long-run persistence of commodity price shocks challenges the conventional policy recommendations to overcome the negative effects of price instability on economic performance. In several cases, the estimated persistence is much lower than previous empirical results, suggesting that commodity stabilization funds can be successful in smoothing export revenues. © 1997 John Wiley & Sons, Ltd.

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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Journal of International Development.

Volume (Year): 9 (1997)
Issue (Month): 3 ()
Pages: 347-366

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Handle: RePEc:wly:jintdv:v:9:y:1997:i:3:p:347-366

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  9. Andrew W. Lo & Craig A. MacKinlay, . "The Size and Power of the Variance Ratio Test in Finite Samples: A Monte Carlo Investigation," Rodney L. White Center for Financial Research Working Papers 28-87, Wharton School Rodney L. White Center for Financial Research.
  10. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
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  13. Cuddington, John T., 1992. "Long-run trends in 26 primary commodity prices : A disaggregated look at the Prebisch-Singer hypothesis," Journal of Development Economics, Elsevier, vol. 39(2), pages 207-227, October.
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