The Long-Run Behavior of Commodity Prices: Small Trends and Big Variability

By Paul Cashin, John Mcdermott, Ximena Cheetham, Robert P. Flood, Hong Liang, P. Nicholson, Sam Ouliaris, Blair Rourke, Peter Wickham. Social Science Research Network, 2001

365 citations recorded by the source corpus.

Using the longest dataset publicly available (The Economist's index of industrial commodity prices), we analyze the behavior of real commodity prices over the period 1862-1999 and have two main findings. First, while there has been a downward trend in real commodity prices of about 1 percent per year over the last 140 years, little support is found for a break in the long-run trend decline in commodity prices. Second, there is evidence of a ratcheting up in the variability of price movements. The amplitude of price movements increased in the early 1900s, while the frequency of large price movements increased after the collapse of the Bretton Woods regime of fixed exchange rates in the early 1970s. Although there is a down-ward trend in real commodity prices, this is of little practical policy relevance, since it is small and completely dominated by the variability of prices.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/f9f55fc319752b82a488b8f00e03ba0e41f238c1

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

Citations in the corpus

Historical energy price shocks and their changing effects on the economy (2017, methodology): “A few have looked at long run ﬂ uctuations associated with resource abundance and scarcity re ﬂ ected in energy prices (Hausman, 1996, Pindyck, 1999, Cashin and McDermott, 2002, Fouquet and Pearson, 2003, Fouquet, 2011, Muller, 2016).”
From boom to bust: a typology of real commodity prices in the long run (2013, neutral): “dynamics which lead Cashin and McDermott (2002) to typify the long-run behavior of commodity prices as “small trends and big variability”.”
What Explains the Rise in Food Price Volatility? (2010, background): “Weather and pest related shocks, together with uncertainty about the expected harvest during the growing season, means that food price volatility is subject to pronounced seasonal, or high frequency, effects (Petersen and Tomek, 2005).”
A Short Note on Updating the Grilli and Yang Commodity Price Index (2007, methodology): “The MUV series from Cashin and McDermott (2002), kindly supplied by Dr Cashin, was used for the 1987–98 period.”
Volatility spillover between oil and agricultural commodity markets (2013, background): “Cashin and Pattillo (2000) and Cashin and McDermott (2001) point out the importance of empirical behavior of commodity prices and emphasize the relevancy of commodity price cycles for policy purposes.”
The Prebisch-Singer Hypothesis: Four Centuries of Evidence (2010, background): “The literature presents the consensual position that the typically large variance of relative commodity prices makes it difficult to ascertain the existence of a trend (see Deaton, 1999, and Cashin & McDermott, 2002).”
Super Cycles in Real Metals Prices? (2008, background): “Examples of times series econometrics approaches include Cuddington and Urzúa (1989); Deaton and Miller (1995); Cashin and McDermott (2002); Cuddington, Ludema, and Jayasuriya (2007); and Gilbert (2007).”
Commodity Price Volatility and the Sources of Growth (2012, neutral): “16Cashin and McDermott (2002) also argue that the volatility of commodity prices, as measured by The Economist’s index of industrial commodity prices, dominates any trend in real prices.”
The Welfare Impacts of Commodity Price Volatility: Evidence from Rural Ethiopia (2013, neutral): “Since the mid-1990s, however, commodity prices have been on a rollercoaster ride (Cashin and McDermott, 2002; Jacks et al., 2009; Roache, 2010).”