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Commodity Prices: Cyclical Weakness or Secular Decline?

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  • Mr. Peter Wickham
  • Ms. Carmen Reinhart

Abstract

Primary commodities still account for the bulk of exports in many developing countries. However, real commodity prices have been declining almost continuously since the early 1980s and there is evidence of renewed weakness. The appropriate policy response to a terms of trade shock depends importantly on whether the shock is perceived to be temporary or permanent. Our results indicate that the recent weakness in commodity prices is mostly of a secular nature, stressing the need for commodity exporting countries to concentrate on export diversification and other structural policies. There is, however, scope for stabilization funds and the use of hedging strategies since the evidence also suggests commodity prices have become more volatile.

Suggested Citation

  • Mr. Peter Wickham & Ms. Carmen Reinhart, 1994. "Commodity Prices: Cyclical Weakness or Secular Decline?," IMF Working Papers 1994/007, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:1994/007
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    More about this item

    Keywords

    WP; commodity price; commodity index; stabilization fund; support commodity agreement; price shock; commodity supply index; export commodity; commodity producer; commodity price behavior; price decline; commodity price index; commodity option; commodity risk; Commodity prices; Commodity price fluctuations; Metals; Agricultural commodities; Africa;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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