What drives commodity price booms and busts? We provide evidence on the dynamic effects of commodity demand shocks, commodity supply shocks, and inventory demand shocks on real commodity prices. In particular, we analyze a new data set of price and production levels for 12 agricultural, metal, and soft commodities from 1870 to 2013. We identify differences in the type of shock driving prices of the various types of commodities and relate these differences to commodity types which reflect differences in long-run elasticities of supply and demand. Our results show that demand shocks strongly dominate supply shocks. * The views in this paper are those of the authors and do not necessarily reflect the views of the Federal Reserve Bank of Dallas or the Federal Reserve System. Jacks gratefully acknowledges the Social Science and Humanities Research Council of Canada for research support. We are grateful for comments and suggestions from participants at the Summer Meeting of the Association of Environmental and Resource Economists, at the Bank of Canada and Federal Reserve Bank of Dallas joint conference on commodity price cycles, at the Norges Bank/CAMP workshop, and at seminars at the Bundesbank and the European Central Bank.
My paper is the first to provide long-run evidence on the dynamic effects of supply and demand shocks on mineral commodity prices. I assemble and analyze a new data set of prices and production levels of copper, lead, tin, zinc, and crude oil from 1840 to 2010.Price fluctuations are primarily driven by demand rather than supply shocks. Demand shocks affect the price persistently for up to 15 years, whereas the effect of supply shocks persists for a maximum of 5 years. My paper shows that price surges caused by rapid industrialization are a recurrent phenomenon throughout history. Mineral commodity prices return to their declining or stable trends in the long run.
My paper is the first to provide long-run evidence on the dynamic effects of supply and demand shocks on mineral commodity prices. I assemble and analyze a new data set of prices and production levels of copper, lead, tin, zinc, and crude oil from 1840 to 2010.Price fluctuations are primarily driven by demand rather than supply shocks. Demand shocks affect the price persistently for up to 15 years, whereas the effect of supply shocks persists for a maximum of 5 years. My paper shows that price surges caused by rapid industrialization are a recurrent phenomenon throughout history. Mineral commodity prices return to their declining or stable trends in the long run.JEL classification: E30, Q31, Q33, N50
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Bonn Graduate School of Economics (BGSE)is gratefully acknowledged.Deutsche Post World Net is a sponsor of the BGSE. Industrialization and the demand for mineral commoditiesMartin Stuermer * November 15th, 2013Abstract What drives the long-term demand for mineral commodities? This paper provides empirical evidence on the long-run demand for mineral commodities since 1840. I extend the partial adjustment model to account for country-specific structures and technological change. I find that a one percent increase in manufacturing output leads to a 1.5 percent increase in the demand for aluminum and a one percent increase in the demand for copper. The estimated manufacturing output elasticities of demand for lead, tin, and zinc are far below one. The estimated price elasticities of demand are highly inelastic for all mineral commodities in the long run. My results suggest that industrialization in China, for example, will cause the consumption of aluminum and copper to increase at a considerably higher rate than the one of lead, tin, and zinc. All variables adjust slowly to equilibrium, which helps to explain the extended fluctuation in these markets.JEL classification: O13, Q31, N50
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