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Commodity Prices, Financial Markets and World Income: A Structural Rational Expectations Model

Author

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  • Ramanujam, Prathap
  • Vines, David

Abstract

In this we specify and jointly estimate supply, demand and price equations for four aggregate commodity groups: food, beverages, agricultural raw materials and metals. This simple structural model allows us, for each group of commodities, to incorporate stock data for the first time, and to include forward-looking expectations. Estimates of this new model reveal that industrial production in developed countries has large and significant short-run effects on the demand for primary commodities. The estimates also suggest (but cannot definitely confirm) that industrial production in developed countries has large permanent effects: these effects differ across the commodity groups for plausible reasons.

Suggested Citation

  • Ramanujam, Prathap & Vines, David, 1989. "Commodity Prices, Financial Markets and World Income: A Structural Rational Expectations Model," CEPR Discussion Papers 319, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:319
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    References listed on IDEAS

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    Cited by:

    1. Gilbert, Christopher L., 1990. "The rational expectations hypothesis in models of primary commodity prices," Policy Research Working Paper Series 384, The World Bank.

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