The determinants of commodity prices

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The determinants of commodity prices

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Reinhart, Carmen
Borensztein, Eduardo

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Carmen M. Reinhart

Abstract

The "traditional structural approach" to the determination of 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 commodity prices during the 1980s and 1990s. This paper extends that framework in two important directions: First, it ncorporates 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, we take a broader view of "world" demand that extends beyond the industrial countries and includes output developments In Eastern Europe and the former Soviet Union (FSU). The empirical results support these extensions, as both the fit of the model improves substantially and, more importantly, its ability to forecast increases markedly.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 13870.

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Date of creation: Jun 1994
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Publication status: Published in IMF Staff Papers 2.41(1994): pp. 175-213
Handle: RePEc:pra:mprapa:13870

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Find related papers by JEL classification:
F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation
F30 - International Economics - - International Finance - - - General
F39 - International Economics - - International Finance - - - Other

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Leamer, Edward E., 1985. "Vector autoregressions for causal inference?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 22(1), pages 255-304, January. [Downloadable!] (restricted)
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. [Downloadable!] (restricted)
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. [Downloadable!] (restricted)
Reinhart, Carmen & Wickham, Peter, 1994. "Commodity Prices: Cyclical Weakness or Secular Decline?," MPRA Paper 8173, University Library of Munich, Germany. [Downloadable!]
Other versions:
- Peter Wickham & Carmen Reinhart, 1994. "Commodity Prices - Cyclical Weakness or Secular Decline?," IMF Working Papers 94/7, International Monetary Fund.
Reinhart, Carmen & Arrau, Patricio & DeGregorio, Jose & Wickham, Peter, 1991. "The demand for money in developing countries: Assessing the role of financial innovation," MPRA Paper 13691, University Library of Munich, Germany. [Downloadable!]
Other versions:
- 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. [Downloadable!]
- Reinhart, Carmen & Arrau, Patricio & DeGregorio, Jose & Wickham, Peter, 1995. "The demand for money in developing countries: Assessing the role of financial innovation," MPRA Paper 14096, University Library of Munich, Germany. [Downloadable!]
- Peter Wickham & Carmen Reinhart & Jose De Gregorio & Patricio Arrau, 1991. "The Demand for Money in Developing Countries: Assessing the Role of Financial Innovation," IMF Working Papers 91/45, International Monetary Fund.
- Arrau, Patricio & De Gregorio, Jose & Reinhart, Carmen M. & Wickham, Peter, 1995. "The demand for money in developing countries: Assessing the role of financial innovation," Journal of Development Economics, Elsevier, vol. 46(2), pages 317-340, April. [Downloadable!] (restricted)
Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November. [Downloadable!] (restricted)
Alogoskoufis, George & Varangis, Panos, 1992. "OECD fiscal policies and the relative prices of primary commodities," Policy Research Working Paper Series 955, The World Bank. [Downloadable!]

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