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A Simple Mineral Market Model: Can it produce Super Cycles in prices?

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  • John T. Cuddington

    ()
    (Division of Economics and Business, Colorado School of Mines)

  • Abdel M. Zellou

    ()
    (Independent Petroleum Consultant)

Abstract

This paper develops a stylized supply-demand model for a mineral / nonrenewable commodity. It embodies important distinctions between short-run and long-run mineral supply and the derived demand for minerals as intermediate goods in production sectors with differing intensities of use. This framework is used to address the question: under what conditions might one expect to observe super cycles (i.e. cycles with a period of 20-70 years) in minerals prices? A plausible time path for GDP growth and the structural transformation that accompanies economic development in an emerging region is specified. Using these drivers and reasonable supply and demand parameters, price dynamics are simulated. The result is an asymmetric price cycle with a peak price that is about 250\% above trend and an expansion phase that lasts for about 20 years. Thus, this simple model is capable of producing a single cycle with a frequency and amplitude in the range estimated in the empirical literature on super cycles. As other regions reach the development `take-off' phase, additional super cycles should emerge.

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File URL: http://econbus.mines.edu/working-papers/wp201205.pdf
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Bibliographic Info

Paper provided by Colorado School of Mines, Division of Economics and Business in its series Working Papers with number 2012-05.

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Length: 42 pages
Date of creation: Jul 2012
Date of revision:
Handle: RePEc:mns:wpaper:wp201205

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Keywords: Super Cycles; Long Cycles; Metal Markets; Metals’ Intensity of Use;

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  1. Gaskins, Darius Jr., 1971. "Dynamic limit pricing: Optimal pricing under threat of entry," Journal of Economic Theory, Elsevier, Elsevier, vol. 3(3), pages 306-322, September.
  2. Douglas Laxton & Andrew Berg & Philippe D Karam, 2006. "A Practical Model-Based Approach to Monetary Policy Analysis: Overview," IMF Working Papers 06/80, International Monetary Fund.
  3. Radetzki, Marian & Eggert, Roderick G. & Lagos, Gustavo & Lima, Marcos & Tilton, John E., 2008. "The boom in mineral markets: How long might it last?," Resources Policy, Elsevier, Elsevier, vol. 33(3), pages 125-128, September.
  4. Dahl, Carol & Duggan, Thomas E., 1996. "U.S. energy product supply elasticities: A survey and application to the U.S. oil market," Resource and Energy Economics, Elsevier, Elsevier, vol. 18(3), pages 243-263, October.
  5. Douglas Laxton & Andrew Berg & Philippe D Karam, 2006. "Practical Model-Based Monetary Policy Analysis," IMF Working Papers 06/81, International Monetary Fund.
  6. Jerrett, Daniel & Cuddington, John T., 2008. "Broadening the statistical search for metal price super cycles to steel and related metals," Resources Policy, Elsevier, Elsevier, vol. 33(4), pages 188-195, December.
  7. John T Cuddington & Daniel Jerrett, 2008. "Super Cycles in Real Metals Prices?," IMF Staff Papers, Palgrave Macmillan, vol. 55(4), pages 541-565, December.
  8. Franklin M. Fisher & Paul H. Cootner & Martin N. Baily, 1972. "An Econometric Model of the World Copper Industry," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 3(2), pages 568-609, Autumn.
  9. Cairns, Robert D. & Calfucura, Enrique, 2012. "OPEC: Market failure or power failure?," Energy Policy, Elsevier, Elsevier, vol. 50(C), pages 570-580.
  10. Abdel M. Zellou & John T. Cuddington, 2012. "Trends and Super Cycles in Crude Oil and Coal Prices," Working Papers, Colorado School of Mines, Division of Economics and Business 2012-10, Colorado School of Mines, Division of Economics and Business.
  11. Krichene, Noureddine, 2002. "World crude oil and natural gas: a demand and supply model," Energy Economics, Elsevier, Elsevier, vol. 24(6), pages 557-576, November.
  12. Radetzki,Marian, 2008. "A Handbook of Primary Commodities in the Global Economy," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521880206.
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