Breaking the Dynamic of Relative Primary Commodity Prices in Levels and Volatilities since 1650

In this paper, we examine two important aspects of the dynamic of relative primary commodity prices, the secular trend and the short run volatility, employing 25 series, some of them starting as far back as 1650 and powerful panel data stationarity tests allowing for endogenous multiple structural breaks. These two aspects may have potentially severe consequences for the conduct of sustainable macro-economic and social stability policies particularly, for resource-rich countries relying on exporting one or few commodities for the bulk their export earnings. All the series have been found stationary but the results on the Prebish-Singer hypothesis, stating that relative commodity prices follow a downward secular trend, is mixed but with a majority of negative trends. We also investigate the dynamic of the volatility of the 25 relative primary commodity prices allowing for data driven number of breaks and dates. We found that primary commodity prices are highly volatile, often time varying and has been generally increasing in recent years which pose many challenges to policy makers.