DP319 Commodity Prices, Financial Markets and World Income: A Structural Rational Expectations Model

Author(s):	Prathap Ramanujam, David Vines
Publication Date:	June 1989
Keyword(s):	Commodities, Developed Countries, Speculation, Stock Prices
JEL(s):	122, 227, 313, 711
Programme Areas:	International Macroeconomics, International Trade and Regional Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=319

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.