Advanced Search
MyIDEAS: Login to save this paper or follow this series

Determinants of Agricultural and Mineral Commodity Prices

Contents:

Author Info

  • Frankel, Jeffrey A.
  • Rose, Andrew K.

Abstract

Prices of most agricultural and mineral commodities rose strongly in the past decade, peaking sharply in 2008. Popular explanations included strong global growth (especially from China and India), easy monetary policy (as reflected in low real interest rates or expected inflation), a speculative bubble (resulting from bandwagon expectations) and risk (possibly resulting from geopolitical uncertainties). Motivated in part by this episode, this paper presents a theory that allows a role for macroeconomic determinants of real commodity prices, along the lines of the “overshooting†model: the resulting model includes global GDP and the real interest rate as macroeconomic factors. Our model also includes microeconomic determinants; we include inventory levels, measures of uncertainty, and the spot-forward spread. We estimate the equation in a variety of different ways, for eleven individual commodities. Although two macroeconomic fundamentals – global output and inflation – both have positive effects on real commodity prices, the fundamentals that seem to have the most consistent and strongest effects are microeconomic variables: volatility, inventories, and the spot-forward spread. There is also some evidence of a bandwagon effect.

Download Info

If 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.
File URL: http://dash.harvard.edu/bitstream/handle/1/4450126/Frankel_Determinantsof.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Harvard Kennedy School of Government in its series Scholarly Articles with number 4450126.

as in new window
Length:
Date of creation: 2010
Date of revision:
Publication status: Published in HKS Faculty Research Working Paper Series
Handle: RePEc:hrv:hksfac:4450126

Contact details of provider:
Postal: 79 JFK Street, Cambridge, MA 02138
Fax: 617-496-2554
Web page: http://www.hks.harvard.edu/
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Barsky, Robert & Kilian, Lutz, 2004. "Oil and the Macroeconomy Since the 1970s," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4496, C.E.P.R. Discussion Papers.
  2. Brenner, Robin J. & Kroner, Kenneth F., 1995. "Arbitrage, Cointegration, and Testing the Unbiasedness Hypothesis in Financial Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 30(01), pages 23-42, March.
  3. Dusak, Katherine, 1973. "Futures Trading and Investor Returns: An Investigation of Commodity Market Risk Premiums," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 81(6), pages 1387-1406, Nov.-Dec..
  4. Sergey V. Chernenko, 2004. "The information content of forward and futures prices: market expectations and the price of risk," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 808, Board of Governors of the Federal Reserve System (U.S.).
  5. Bopp, Anthony E. & Lady, George M., 1991. "A comparison of petroleum futures versus spot prices as predictors of prices in the future," Energy Economics, Elsevier, Elsevier, vol. 13(4), pages 274-282, October.
  6. Frankel, Jeffrey A & Hardouvelis, Gikas A, 1985. "Commodity Prices, Money Surprises and Fed Credibility," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 17(4), pages 425-38, November.
  7. Moosa, Imad A. & Al-Loughani, Nabeel E., 1994. "Unbiasedness and time varying risk premia in the crude oil futures market," Energy Economics, Elsevier, Elsevier, vol. 16(2), pages 99-105, April.
  8. Gary Gorton & Fumio Hayashi & K. Rouwenhorst, 2007. "The Fundamentals of Commodity Futures Returns," Yale School of Management Working Papers, Yale School of Management amz2605, Yale School of Management, revised 01 Oct 2008.
  9. Cuddington, John T & Urzua, Carlos M, 1989. "Trends and Cycles in the Net Barter Terms of Trade: A New Approach," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 99(396), pages 426-42, June.
  10. Kenneth A. Froot and Jeffrey A. Frankel., 1988. "Forward Discount Bias: Is It an Exchange Risk Premium?," Economics Working Papers, University of California at Berkeley 8874, University of California at Berkeley.
  11. Geetesh Bhardwaj & Gary Gorton & K. Rouwenhorst, 2008. "Fooling Some of the People All of the Time: The Inefficient Performance and Persistence of Commodity Trading Advisors," Yale School of Management Working Papers, Yale School of Management amz2429, Yale School of Management.
  12. Peter Wickham & Carmen Reinhart, 1994. "Commodity Prices," IMF Working Papers 94/7, International Monetary Fund.
  13. Ye, Michael & Zyren, John & Shore, Joanne, 2006. "Forecasting short-run crude oil price using high- and low-inventory variables," Energy Policy, Elsevier, Elsevier, vol. 34(17), pages 2736-2743, November.
  14. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 84(6), pages 1161-76, December.
  15. Ye, Michael & Zyren, John & Shore, Joanne, 2005. "A monthly crude oil spot price forecasting model using relative inventories," International Journal of Forecasting, Elsevier, Elsevier, vol. 21(3), pages 491-501.
  16. Reinhart, Carmen & Wickham, Peter, 1994. "Commodity Prices: Cyclical Weakness or Secular Decline?," MPRA Paper 8173, University Library of Munich, Germany.
  17. Robert A. Mundell, 2002. "The international monetary system: quo vadis," Discussion Papers, Columbia University, Department of Economics 0102-34, Columbia University, Department of Economics.
  18. Menzie D. Chinn & Michael LeBlanc & Olivier Coibion, 2005. "The Predictive Content of Energy Futures: An Update on Petroleum, Natural Gas, Heating Oil and Gasoline," NBER Working Papers 11033, National Bureau of Economic Research, Inc.
  19. Phillips, Llad & Pippenger, John, 2005. "Some Pitfalls in Testing the Law of One Price in Commodity Markets," University of California at Santa Barbara, Economics Working Paper Series qt92b16177, Department of Economics, UC Santa Barbara.
  20. Balabanoff, Stefan, 1995. "Oil futures prices and stock management A cointegration analysis," Energy Economics, Elsevier, Elsevier, vol. 17(3), pages 205-210, July.
  21. Jeffrey A. Frankel, 1995. "Financial Markets and Monetary Policy," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262061740, December.
  22. Carter, Colin A., 1999. "Commodity futures markets: a survey," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, Australian Agricultural and Resource Economics Society, vol. 43(2).
  23. Hazuka, Thomas B, 1984. " Consumption Betas and Backwardation in Commodity Markets," Journal of Finance, American Finance Association, American Finance Association, vol. 39(3), pages 647-55, July.
  24. Protopapadakis, Aris & Stoll, Hans R, 1983. " Spot and Futures Prices and the Law of One Price," Journal of Finance, American Finance Association, American Finance Association, vol. 38(5), pages 1431-55, December.
  25. Robert B. Barsky & Lutz Kilian, 2001. "Do We Really Know that Oil Caused the Great Stagflation? A Monetary Alternative," NBER Working Papers 8389, National Bureau of Economic Research, Inc.
  26. A. Protopapadakis, Aris & R. Stoll, Hans, 1986. "The Law of One Price in international commodity markets: A reformulation and some formal tests," Journal of International Money and Finance, Elsevier, Elsevier, vol. 5(3), pages 335-360, September.
  27. Fama, Eugene F & French, Kenneth R, 1987. "Commodity Futures Prices: Some Evidence on Forecast Power, Premiums,and the Theory of Storage," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 60(1), pages 55-73, January.
  28. Morana, Claudio, 2001. "A semiparametric approach to short-term oil price forecasting," Energy Economics, Elsevier, Elsevier, vol. 23(3), pages 325-338, May.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Ratti, Ronald A. & Vespignani, Joaquin L., 2012. "Liquidity and Crude Oil Prices: China’s Influence Over 1996-2011," MPRA Paper 48900, University Library of Munich, Germany.
  2. Claudio Morana, 2013. "Oil price dynamics, macro-finance interactions and the role of financial speculation," Working Papers, University of Milano-Bicocca, Department of Economics 225, University of Milano-Bicocca, Department of Economics, revised Nov 2013.
  3. Frankel, Jeffrey A., 2013. "Effects of Speculation and Interest Rates in a "Carry Trade" Model of Commodity Prices," Working Paper Series, Harvard University, John F. Kennedy School of Government rwp13-022, Harvard University, John F. Kennedy School of Government.
  4. Ratti, Ronald A & Vespignani, Joaquin L., 2012. "Crude Oil Prices and Liquidity, the BRIC and G3 countries," MPRA Paper 44049, University Library of Munich, Germany.
  5. Annastiina Silvennoinen & Susan Thorp, 2010. "Financialization, Crisis and Commodity Correlation Dynamics," Research Paper Series, Quantitative Finance Research Centre, University of Technology, Sydney 267, Quantitative Finance Research Centre, University of Technology, Sydney.
  6. Papież, Monika & Śmiech, Sławomir & Dąbrowski, Marek A., 2014. "The impact of the Euro area macroeconomy on energy and non-energy global commodity prices," MPRA Paper 56663, University Library of Munich, Germany.
  7. Alessio Anzuini & Marco J. Lombardi & Patrizio Pagano, 2012. "The impact of monetary policy shocks on commodity prices," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 851, Bank of Italy, Economic Research and International Relations Area.
  8. Gospodinov, Nikolay & Jamali, Ibrahim, 2013. "Monetary policy surprises, positions of traders, and changes in commodity futures prices," Working Paper, Federal Reserve Bank of Atlanta 2013-12, Federal Reserve Bank of Atlanta.
  9. Ronald A. Ratti & Joaquin L. Vespignani, 2014. "Oil prices and the economy: A global perspective," CAMA Working Papers 2014-41, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  10. Avalos, Fernando, 2014. "Do oil prices drive food prices? The tale of a structural break," Journal of International Money and Finance, Elsevier, Elsevier, vol. 42(C), pages 253-271.
  11. Scott H. Irwin & Dwight R. Sanders, 2011. "Index Funds, Financialization, and Commodity Futures Markets," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 33(1), pages 1-31.
  12. John Baffes & Damir Cosic, 2014. "Global Economic Prospects : Commodity Markets Outlook, January 2014," World Bank Publications, The World Bank, number 18996, August.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:hrv:hksfac:4450126. See general 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: (Ben Steinberg).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.