The Macroeconomic Determinants of Commodity Prices

January 1, 1994

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Format: Chicago

Eduardo Borensztein, and Carmen Reinhart. The Macroeconomic Determinants of Commodity Prices, (USA: International Monetary Fund, 1994) accessed November 24, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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 incorporates 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.

Subject: Commodities, Commodity markets, Commodity prices, Financial markets, Foreign exchange, Industrial production, Prices, Production, Real exchange rates

Keywords: Commodity, Commodity export, Commodity market, Commodity markets, Commodity prices, Commodity Research Bureau, Constructed commodity supply index, Eastern Europe, Industrial production, Price, Real exchange rates, World commodity supply, WP

Publication Details

Pages:

37
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1994/009
Stock No:

WPIEA0091994
ISBN:

9781451927221
ISSN:

1018-5941

Notes

Also published in Staff Papers, Vol. 41, No. 2, June 1994.

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