A model of commodity prices after Sir Arthur Lewis
We develop an idea from Arthur Lewis' paper on unlimited supplies of labor to model the long run behavior of the prices of primary commodity produced by poor countries. Commodity supply is assumed infinitely elastic in the long run, and the rate of growth of supply responds to the excess of the current price over the long run supply price. Demand is linked to the level of world income and to the price of the commodity, so that price is stationary around its supply price, and commodity supply and world income are cointegrated. The model is fitted to long-run historical data.
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- Angus Deaton & Guy Laroque, 1992.
"On the Behaviour of Commodity Prices,"
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- Lewis Cecil Gray, 1914. "Rent under the Assumption of Exhaustibility," The Quarterly Journal of Economics, Oxford University Press, vol. 28(3), pages 466-489.
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- Deaton, Angus & Laroque, Guy, 1996. "Competitive Storage and Commodity Price Dynamics," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 896-923, October.
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