The "traditional structural approach" to determining real commodity prices has relied exclusively on demand factors as the fundamentals that explain commodity prices. This framework, however, has been unable to explain the sustained weakness in commodity prices in the 1980s and 1990s. This paper extends that framework in two important directions: first, it incorporates commodity supply in the analysis, capturing the impact on prices of the sharp increase in exports of developing countries during the debt crisis of the 1980s. Second, it takes a broader view of "world" demand that extends beyond the industrial countries and includes output developments in Eastern Europe and the Former Soviet Union. The empirical results support these extensions, as both the fit of the model improves substantially and, more important, 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
6979.
Length: Date of creation: Jun 1994 Date of revision: Publication status: Published in IMF Staff Papers 2.41(1994): pp. 236-261 Handle: RePEc:pra:mprapa:6979
Find related papers by JEL classification: F3 - International Economics - - International Finance E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
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