Commodity Price Uncertainty in Developing Countries
Commodity export price uncertainty is typically measured as the standard deviation of the terms of trade, but this approach encounters at least three objections. First, terms of trade indices are unsuitable as proxies for commodity price movements per se. Secondly, the shortness of terms of trade time series makes them inappropriate as a basis for constructing time varying uncertainty measures. Thirdly, simple standard deviation measures ignore the distinction between predictable and unpredictable elements in the price process, and therefore risk overstating uncertainty. The paper examines the features of commodity price uncertainty in developing countries using a new data set of unique quarterly aggregate commodity price indices for 113 developing countries over the period 1957Q1-1997Q4. A total of six different uncertainty measures are constructed, which confirm the importance of distinguishing between predictable and unpredictable components in the price process when measuring uncertainty. A a positive and highly significant relationship between commodity export concentration and commodity price uncertainty is found for all the measures. No obvious link is found between a countryÃ¢â‚¬â„¢s regional affiliation and its exposure to uncertainty. Similarly, there is no apparent relationship between a countryÃ¢â‚¬â„¢s experience of uncertainty and the type of commodities which dominates its exports. The exception is oil producers, which face greater uncertainty. The greater uncertainty faced by these countries can, however, be attributed almost exclusively to discrete and well publicised discrete oil shocks. A GARCH based measure of uncertainty indicates considerable time variation in uncertainty. Uncertainty is sometimes characterised by discrete spikes, while uncertainty in countries exhibits a secular increase in uncertainty over time. The majority of countries have seen uncertainty which exhibits considerable persistence. It is not clear what lies behind the time variation in uncertainty, which cannot be explained with reference to relatively time invarying export concentration.
|Date of creation:||01 May 2000|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.economics.ox.ac.uk/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Tim Bollerslev, 1986.
"Generalized autoregressive conditional heteroskedasticity,"
EERI Research Paper Series
EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
- Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
- repec:cup:cbooks:9780521632423 is not listed on IDEAS
- repec:cup:cbooks:9780521634809 is not listed on IDEAS
When requesting a correction, please mention this item's handle: RePEc:oxf:wpaper:wps/2000-12. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Caroline Wise)
If references are entirely missing, you can add them using this form.