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A Barrel of Oil or a Bottle of Wine: How Do Global Growth Dynamics Affect Commodity Prices?

  • Tahsin Saadi Sedik
  • Serhan Cevik

This paper investigates the causes of extreme fluctuations in commodity prices from 1990 to 2010. Analyzing two very distinct commodities-crude oil and fine wine, we find that macroeconomic factors are the main determinants of commodity prices. Although supply constraints have the expected effect, aggregate demand growth is the key factor. The empirical results show that while advanced economies account for more than half of global consumption, emerging economies make up the bulk of the incremental change in demand, thereby having a greater weight in commodity price formation. The results also show that the shift in the composition of aggregate commodity demand is a recent phenomenon.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/1.

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Length: 19
Date of creation: 01 Jan 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/1
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  1. Martin Petri & Tahsin Saadi-Sedik, 2006. "To Smooth or Not to Smooth—The Impact of Grants and Remittances on the Equilibrium Real Exchange Rate in Jordan," IMF Working Papers 06/257, International Monetary Fund.
  2. David Coady & Javier Arze del Granado, 2010. "The Unequal Benefits of Fuel Subsidies: A Review of Evidence for Developing Countries," IMF Working Papers 10/202, International Monetary Fund.
  3. Jean-Marie Cardebat & Jean-Marc Figuet, 2004. "What explains Bordeaux wine prices?," Applied Economics Letters, Taylor & Francis Journals, vol. 11(5), pages 293-296.
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