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Discussion Paper Details

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

Author(s): Prathap Ramanujam and David Vines

Publication Date: June 1989

Keyword(s): Commodities, Developed Countries, Speculation and Stock Prices

Programme Area(s): International Macroeconomics and International Trade and Regional Economics

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.

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Bibliographic Reference

Ramanujam, P and Vines, D. 1989. 'Commodity Prices, Financial Markets and World Income: A Structural Rational Expectations Model'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=319