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The Macroeconomic Determinants of Commodity Prices

  • Reinhart, Carmen
  • Borensztein, Eduardo

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

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File URL: http://mpra.ub.uni-muenchen.de/6979/1/MPRA_paper_6979.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6979.

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Date of creation: Jun 1994
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Publication status: Published in IMF Staff Papers 2.41(1994): pp. 236-261
Handle: RePEc:pra:mprapa:6979
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  1. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November.
  2. Joshua Aizenman & Eduardo R. Borensztein, 1988. "Debt and Conditionality under Endogenous Terms of Trade Adjustment," NBER Working Papers 2582, National Bureau of Economic Research, Inc.
  3. Arrau, Patricio & De Gregorio, Jose & Reinhart, Carmen M. & Wickham, Peter, 1995. "The demand for money in developing countries: Assessing the role of financial innovation," Journal of Development Economics, Elsevier, vol. 46(2), pages 317-340, April.
  4. Reinhart, Carmen & Wickham, Peter, 1994. "Non-oil commodity prices: Cyclical weakness or secular decline?," MPRA Paper 13871, University Library of Munich, Germany.
  5. Carmen Reinhart, 1990. "Fiscal Policy, the Real Exchange Rate and Commodity Prices," IMF Working Papers 90/91, International Monetary Fund.
  6. Robert S. Pindyck & Julio J. Rotemberg, 1988. "The Excess Co-Movement of Commodity Prices," NBER Working Papers 2671, National Bureau of Economic Research, Inc.
  7. Deaton, A. & Laroque, G., 1989. "On The Behavior Of Commodity Prices," Papers 145, Princeton, Woodrow Wilson School - Development Studies.
  8. 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.
  9. Alogoskoufis, George & Varangis, Panos, 1992. "OECD fiscal policies and the relative prices of primary commodities," Policy Research Working Paper Series 955, The World Bank.
  10. Leamer, Edward E., 1985. "Vector autoregressions for causal inference?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 22(1), pages 255-304, January.
  11. 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.
  12. 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.
  13. Graciela Kaminsky & Manmohan S. Kumar, 1990. "Efficiency in Commodity Futures Markets," IMF Staff Papers, Palgrave Macmillan, vol. 37(3), pages 670-699, September.
  14. 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.
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