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The determinants of commodity prices

  • Reinhart, Carmen
  • Borensztein, Eduardo

The "traditional structural approach" to the determination of real commodity prices has relied exclusively on demand factors as the fundamentals that explain the behavior of commodity prices. This framework, however, has been unable to explain the marked and sustained weakness in commodity prices during the 1980s and 1990s. This paper extends that framework in two important directions: First, it ncorporates commodity supply in the analysis, capturing the impact on prices of the sharp increase in commodity exports of developing countries during the debt crisis of the 1980s. Second, we take a broader view of "world" demand that extends beyond the industrial countries and includes output developments In Eastern Europe and the former Soviet Union (FSU). The empirical results support these extensions, as both the fit of the model improves substantially and, more importantly, its ability to forecast increases markedly.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 13870.

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Date of creation: Jun 1994
Date of revision:
Publication status: Published in IMF Staff Papers 2.41(1994): pp. 175-213
Handle: RePEc:pra:mprapa:13870
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  1. Robert S. Pindyck & Julio J. Rotemberg, 1988. "The Excess Co-Movement of Commodity Prices," NBER Working Papers 2671, National Bureau of Economic Research, Inc.
  2. Reinhart, Carmen & Arrau, Patricio & DeGregorio, Jose & Wickham, Peter, 1995. "The demand for money in developing countries: Assessing the role of financial innovation," MPRA Paper 14096, University Library of Munich, Germany.
  3. repec:pal:imfstp:v:37:y:1990:i:3:p:670-699 is not listed on IDEAS
  4. Deaton, A. & Laroque, G., 1989. "On The Behavior Of Commodity Prices," Papers 145, Princeton, Woodrow Wilson School - Public and International Affairs.
  5. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 38(2), pages 112-134.
  6. Hansen, Lars Peter & Hodrick, Robert J, 1980. "Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis," Journal of Political Economy, University of Chicago Press, vol. 88(5), pages 829-53, October.
  7. Gilbert, Christopher L, 1989. "The Impact of Exchange Rates and Developing Country Debt on Commodity Prices," Economic Journal, Royal Economic Society, vol. 99(397), pages 773-84, September.
  8. repec:pal:imfstp:v:35:y:1988:i:4:p:686-713 is not listed on IDEAS
  9. Reinhart, Carmen, 1990. "Fiscal policy, the real exchange rate and commodity prices: A global framework," MPRA Paper 14102, University Library of Munich, Germany.
  10. Carmen Reinhart, 1990. "Fiscal Policy, the Real Exchange Rate and Commodity Prices," IMF Working Papers 90/91, International Monetary Fund.
  11. Reinhart, Carmen & Wickham, Peter, 1994. "Non-oil commodity prices: Cyclical weakness or secular decline?," MPRA Paper 13871, University Library of Munich, Germany.
  12. Leamer, Edward E., 1985. "Vector autoregressions for causal inference?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 22(1), pages 255-304, January.
  13. repec:pal:imfstp:v:41:y:1994:i:2:p:175-213 is not listed on IDEAS
  14. Mussa, Michael, 1986. "Nominal exchange rate regimes and the behavior of real exchange rates: Evidence and implications," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 117-214, January.
  15. Alogoskoufis, George & Varangis, Panos, 1992. "OECD fiscal policies and the relative prices of primary commodities," Policy Research Working Paper Series 955, The World Bank.
  16. Rudiger Dornbusch, 1985. "Policy and Performance Links between LDC Debtors and Industrial Nations," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(2), pages 303-368.
  17. Peter Wickham & Carmen Reinhart, 1994. "Commodity Prices; Cyclical Weakness or Secular Decline?," IMF Working Papers 94/7, International Monetary Fund.
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