The Macroeconomic Determinants of Commodity Prices

20 Pages Posted: 15 Feb 2006

See all articles by Eduardo Borensztein

Eduardo Borensztein

Inter-American Development Bank (IADB)

Carmen Reinhart

National Bureau of Economic Research (NBER); Peter G. Peterson Institute for International Economics; Harvard University - Center for Business and Government; Harvard University, Harvard Kennedy School (HKS), Belfer Center for Science and International Affairs (BCSIA) ; University of Maryland - School of Public Affairs; World Bank; Centre for Economic Policy Research (CEPR); International Monetary Fund (IMF); Harvard University - Harvard Kennedy School (HKS)

Date Written: January 1994

Abstract

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.

JEL Classification: E30, F39

Suggested Citation

Borensztein, Eduardo and Reinhart, Carmen and Reinhart, Carmen and Reinhart, Carmen and Reinhart, Carmen and Reinhart, Carmen and Reinhart, Carmen and Reinhart, Carmen and Reinhart, Carmen, The Macroeconomic Determinants of Commodity Prices (January 1994). Available at SSRN: https://ssrn.com/abstract=883427 or http://dx.doi.org/10.2139/ssrn.883427

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Carmen Reinhart

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