The Macroeconomic Determinants of Commodity Prices

Commodity Prices: Cyclical Weakness or Secular Decline?

“…A sizable negative cycle component in commodity prices, such as those characterizing the 1975 and 1982 recessions in the United States and other industrial countries (see Figure 5), is not currently present. Further, Borensztein and Reinhart (1994) show that only a small fraction of the variability in real commodity prices in 1989-92 is attributable to output developments in industrial countries. Their analysis indicates that developments in the former Soviet Union (discussed below) can account for a more important share of the recent variability in commodity prices.…”

“…As shown in Borensztein and Reinhart (1994), supply conditions have played a key role in explaining the weakness in commodity prices. partic-.…”

“…No attempt has been made to link the behavior of commodity prices to other economic time-series, as in Chu and Morrison (1986), and, more recently, Borensztein and Reinhart (1994) through a structural model. This section does not aim to provide a structural framework; its purpose is briefly to identify and list the factors that are likely to explain the behavior of commodity prices, including factors that are often ignored in the empirical literature (usually because they are less amenable to quantification).…”

“…For example, it does not distinguish between a temporary shock owing to a recession in :he industrial countries and a temporary shock owing to a bumper crop. Such a distinction would require a structural model of commodity prices (see Borensztein and Reinhart (1994». In addition to assessing whether a commodity price is driven primarily by permanent or transitory shocks. other aspects of the nature of the shocks have to be considered when designing policy.…”

Is the interest rate more important than inventories? The case of agricultural commodities in the context of the financialization process

“…Because they are highly unpredictable and have a direct incidence on inventories, they constitute a major source of price uncertainty in the future. Also, market effects are related to the functioning of the market itself including the following factors: levels of production and supply effects (Borensztein & Reinhart, 1994;Maizels, 1994), demand effects (FMI, 2008;Kaplinsky, 2006;Cheung & Morin, 2007), new technologies and biofuels (UNCTAD, 2009;FMI, 2007;Johnson, 2007), interest rates (Frankel, 2006), exchange rates (Ridler & Yandle, 1972;Dornbusch, 1985, Borensztein & Reinhart, 1994, and other financial effects (Irwin & Sanders, 2011;Henderson, Pearson & Wang, 2015;Tang & Xiong, 2012;Singleton, 2013).…”