Commodity Prices, Financial Markets and World Income: A Structural Rational Expectations Model

Prathap Ramanujam and David Vines

No 319, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: In this we specify and jointly estimate supply, demand and price equations for four aggregate commodity groups: food, beverages, agricultural raw materials and metals. This simple structural model allows us, for each group of commodities, to incorporate stock data for the first time, and to include forward-looking expectations. Estimates of this new model reveal that industrial production in developed countries has large and significant short-run effects on the demand for primary commodities. The estimates also suggest (but cannot definitely confirm) that industrial production in developed countries has large permanent effects: these effects differ across the commodity groups for plausible reasons.

Keywords: Commodities; Developed Countries; Speculation; Stock Prices (search for similar items in EconPapers)
Date: 1989-06
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