Growth in Emerging Market Economies and the Commodity Boom of 2003–2008: Evidence from Growth Forecast Revisions
AbstractDemand for industrial raw materials from emerging economies, particularly emerging Asia, is widely believed to have fueled the surge in oil and industrial commodity prices during 2002-2008. The paper first presents a simple storage model in which commodity prices respond to market participant’s changing expectations of the future macroeconomic environment. In the model, the change in the price of a commodity depends on the unanticipated changes in demand factors, along with the real exchange rate, the real interest rate, and other factors that affect the marginal convenience yield. It then focuses on the role of demand factors by using a newly constructed monthly measure of unanticipated demand shocks for commodities based on revisions to professional forecasts of industrial production growth for a large group of emerging market and advanced economies. The empirical framework also controls for other macroeconomic factors that affect commodity prices, such as the real effective exchange rate (REER) of the U.S. dollar and the real interest rate. The results show that revisions to growth forecasts for emerging Asia play an important role in explaining movements in the real prices of industrial metals. In addition, the REER of the U.S. dollar is an important determinant of industrial commodity prices. For crude oil, growth forecast revisions for the U.S. and the real interest rate play a significant role in explaining real prices. Furthermore, growth surprises in general fall short of explaining the fast run-up in most commodity prices during 2006-2008, and the magnitude of the collapse in prices during the recent global financial crisis.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Bank of Canada in its series Working Papers with number 12-8.
Length: 36 pages
Date of creation: 2012
Date of revision:
Contact details of provider:
Postal: 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada
Phone: 613 782-8845
Fax: 613 782-8874
Web page: http://www.bank-banque-canada.ca/
Econometric and statistical methods; International topics;
Find related papers by JEL classification:
- Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
- Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-03-14 (All new papers)
- NEP-FOR-2012-03-14 (Forecasting)
- NEP-OPM-2012-03-14 (Open Economy Macroeconomic)
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.