Testing the Prebisch-Singer Hypothesis Since 1650: Evidence from Panel Techniques that Allow for Multiple Breaks

38 Pages Posted: 11 Sep 2013

See all articles by Rabah Arezki

Rabah Arezki

World Bank - African Development Bank

Kaddour Hadri

Queen's University Belfast

Prakash Loungani

International Monetary Fund (IMF)

Yao Rao

The University of Liverpool

Date Written: August 2013

Abstract

In this paper, we re-examine two important aspects of the dynamics of relative primary commodity prices, namely the secular trend and the short run volatility. To do so, we employ 25 series, some of them starting as far back as 1650 and powerful panel data stationarity tests that allow for endogenous multiple structural breaks. Results show that all the series are stationary after allowing for endogeneous multiple breaks. Test results on the Prebisch-Singer hypothesis, which states that relative commodity prices follow a downward secular trend, are mixed but with a majority of series showing negative trends. We also make a first attempt at identifying the potential drivers of the structural breaks. We end by investigating the dynamics of the volatility of the 25 relative primary commodity prices also allowing for endogenous multiple breaks. We describe the often time-varying volatility in commodity prices and show that it has increased in recent years.

Keywords: Commodity prices, Commodity price fluctuations, Economic models, Primary commodities, Unit root tests, Multiple Structural breaks, Volatility., commodity markets, transport costs, exchange rate regimes, terms of trade, speculative capital, competitive markets

JEL Classification: O13, C22

Suggested Citation

Arezki, Rabah and Hadri, Kaddour and Loungani, Prakash and Rao, Yao, Testing the Prebisch-Singer Hypothesis Since 1650: Evidence from Panel Techniques that Allow for Multiple Breaks (August 2013). IMF Working Paper No. 13/180, Available at SSRN: https://ssrn.com/abstract=2324175

Rabah Arezki (Contact Author)

World Bank - African Development Bank ( email )

15 Avenue du Ghana
P.O.Box 323-1002
Tunis-Belvedère
Tunisia

Kaddour Hadri

Queen's University Belfast ( email )

25 University Square
Belfast, BT7 1NN
Ireland

Prakash Loungani

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-7043 (Phone)
202-623-4740 (Fax)

Yao Rao

The University of Liverpool ( email )

Chatham Street
The University of Liverpool
Liverpool, L69 7ZH
United Kingdom

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