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The Macroeconomic Determinants of Commodity Prices

Author

Listed:
  • Eduardo Borensztein

    (International Monetary Fund)

  • Carmen M. Reinhart

    (International Monetary Fund)

Abstract

The "traditional structural approach" to determining 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 these prices during 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 commodity 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.

Suggested Citation

  • Eduardo Borensztein & Carmen M. Reinhart, 1994. "The Macroeconomic Determinants of Commodity Prices," IMF Staff Papers, Palgrave Macmillan, vol. 41(2), pages 236-261, June.
  • Handle: RePEc:pal:imfstp:v:41:y:1994:i:2:p:236-261
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • F39 - International Economics - - International Finance - - - Other

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