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Structural Breaks And Long-Run Trends In Commodity Prices

  • JAVIER LE�N

    (Inter-American Development Bank, Washington)

  • RAIMUNDO SOTO

    (ILADES-Georgetown University, Santiago, Chile)

The purpose of this paper is twofold: first, it tests the Prebisch-Singer hypothesis of a secular deteriorating trend, and, second, presents a time-series analysis of the dynamics of commodity prices. Using annual data for the 1900-92 period and employing recently developed econometric techniques, we show that 17 of the 24 commodity prices studied present negative long-run trends, three are trendless and four have positive trends. Contrary to previous findings, this evidence suggests that although the Prebisch-Singer hypothesis is not a universal phenomenon, it is the case of most commodities. Moreover, the estimated long-run persistence of commodity price shocks challenges the conventional policy recommendations to overcome the negative effects of price instability on economic performance. In several cases, the estimated persistence is much lower than previous empirical results, suggesting that commodity stabilization funds can be successful in smoothing export revenues. © 1997 John Wiley & Sons, Ltd.

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Article provided by John Wiley & Sons, Ltd. in its journal Journal of International Development.

Volume (Year): 9 (1997)
Issue (Month): 3 ()
Pages: 347-366

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Handle: RePEc:wly:jintdv:v:9:y:1997:i:3:p:347-366
Contact details of provider: Web page: http://www3.interscience.wiley.com/journal/5102/home

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  1. Behrman, Jere R., 1987. "Commodity price instability and economic goal attainment in developing countries," World Development, Elsevier, vol. 15(5), pages 559-573, May.
  2. Danny Quah, 1991. "The Relative Importance of Permanent and Transitory Components: Identi- fication and Some Theoretical Bounds," NBER Technical Working Papers 0106, National Bureau of Economic Research, Inc.
  3. Reinhart, Carmen & Wickham, Peter, 1994. "Non-oil commodity prices: Cyclical weakness or secular decline?," MPRA Paper 13871, University Library of Munich, Germany.
  4. D. Sapsford & P. Sarkar & H. W. Singer, 1992. "The prebisch‐singer terms of trade controversy revisited," Journal of International Development, John Wiley & Sons, Ltd., vol. 4(3), pages 315-332, 05.
  5. Perron, P, 1988. "The Great Crash, The Oil Price Shock And The Unit Root Hypothesis," Papers 338, Princeton, Department of Economics - Econometric Research Program.
  6. Lo, Andrew W. & MacKinlay, A. Craig, 1989. "The size and power of the variance ratio test in finite samples : A Monte Carlo investigation," Journal of Econometrics, Elsevier, vol. 40(2), pages 203-238, February.
  7. Cuddington, John T., 1992. "Long-run trends in 26 primary commodity prices : A disaggregated look at the Prebisch-Singer hypothesis," Journal of Development Economics, Elsevier, vol. 39(2), pages 207-227, October.
  8. Cochrane, John H, 1988. "How Big Is the Random Walk in GNP?," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 893-920, October.
  9. Anindya Banerjee & Robin L. Lumsdaine & James H. Stock, 1990. "Recursive and Sequential Tests of the Unit Root and Trend Break Hypothesis: Theory and International Evidence," NBER Working Papers 3510, National Bureau of Economic Research, Inc.
  10. Rudebusch, Glenn D, 1993. "The Uncertain Unit Root in Real GNP," American Economic Review, American Economic Association, vol. 83(1), pages 264-72, March.
  11. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
  12. Vial, Joaquin, 1992. "Copper consumption in the USA: Main determinants and structural changes," Resources Policy, Elsevier, vol. 18(2), pages 107-121, June.
  13. Chow, K. Victor & Denning, Karen C., 1993. "A simple multiple variance ratio test," Journal of Econometrics, Elsevier, vol. 58(3), pages 385-401, August.
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