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Trends in real commodity prices: How real is real?

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  • Fernandez, Viviana

Abstract

Testing for the existence of downward trends in real commodity prices has been the focus of several studies since the Prebisch–Singer hypothesis was formulated back in 1950. In this article, we focus on annual and monthly series of various commodity categories and consider alternative price deflators. Based on the methodology of Harvey et al. (2010), which is robust to the order of integration of the time series, we conclude that the time frequency and the price deflators play a key role when testing for the Prebisch–Singer hypothesis. For instance, at an annual frequency (1900–2003, 1900–2008), it becomes considerably more likely to support it when deflating by the unadjusted US CPI-all items than when deflating by the Manufactures Unit Value (MUV) Index or the Historical Price Index of Manufactures (HPIM). This finding is in agreement with the Svedberg and Tilton (2006) discussion on the CPI's overestimation of inflation and the measurement of the real price of copper. When dealing with monthly data (January 1957–December 2010), our results show that real prices tend not to reject the null hypothesis of a trendless series, except when deflating by the PPI-Crude Materials and, to a lesser extent, by the HPIM.

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  • Fernandez, Viviana, 2012. "Trends in real commodity prices: How real is real?," Resources Policy, Elsevier, vol. 37(1), pages 30-47.
  • Handle: RePEc:eee:jrpoli:v:37:y:2012:i:1:p:30-47
    DOI: 10.1016/j.resourpol.2011.12.007
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    5. Christophe Gouel & Nicolas Legrand, 2017. "Estimating the Competitive Storage Model with Trending Commodity Prices," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 32(4), pages 744-763, June.
    6. Yamada, Hiroshi & Yoon, Gawon, 2014. "When Grilli and Yang meet Prebisch and Singer: Piecewise linear trends in primary commodity prices," Journal of International Money and Finance, Elsevier, vol. 42(C), pages 193-207.
    7. Fernandez, Viviana, 2015. "Commodity price excess co-movement from a historical perspective: 1900–2010," Energy Economics, Elsevier, vol. 49(C), pages 698-710.
    8. Tilton, John E., 2013. "The terms of trade debate and the policy implications for primary product producers," Resources Policy, Elsevier, vol. 38(2), pages 196-203.
    9. Fernandez, Viviana, 2014. "Linear and non-linear causality between price indices and commodity prices," Resources Policy, Elsevier, vol. 41(C), pages 40-51.
    10. Wen, Fenghua & Zhao, Cong & Hu, Chunyan, 2019. "Time-varying effects of international copper price shocks on China's producer price index," Resources Policy, Elsevier, vol. 62(C), pages 507-514.
    11. Thorsten Janus & Daniel Riera‐Crichton & Brittany Tarufelli, 2022. "Commodity terms of trade shocks and political transitions," Economics and Politics, Wiley Blackwell, vol. 34(3), pages 465-493, July.
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    More about this item

    Keywords

    Prebisch–Singer hypothesis; Real commodity prices;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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