What can we learn from primary commodity prices series which is useful to policymakers in resource-rich countries?
This paper investigates the properties of real commodity prices from the per- spective of policy makers seeking to conduct a successful ?scal policy in resource- rich countries. We found that policy makers face three potential challenges: (1) secular decline of real commodity prices, the so-called Prebish-Singer (PS) hypoth- esis, (2) real commodity prices are characterised by long-cycles, (3) and relative high volatility of real commodity prices. Employing recent and powerful econo- metrics/statistical techniques, we found that real commodity prices are mean re- verting, declining over time, have long cycles and relatively high volatility and this volatility is time varying. We summarised the most successful solutions to these three challenges faced by policy makers including the countercyclical structural budget technique pioneered by Chile.
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|Date of revision:||Nov 2010|
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