Are Popular Narratives Regarding Recent Commodity Price Spikes Accurate?
18 Pages Posted: 28 May 2015
Date Written: July 3, 2012
This paper reviews both the theory and empirical evidence regarding how commodity futures market work, including the role of the speculator. The paper also discusses how difficult it is to apportion causality for commodity price spikes when inventories-relative-to-consumption become sufficiently low and therefore to be skeptical about popular narratives regarding commodity price spikes. The paper concludes that modern commodity futures markets are the result of 160 years of trial-and-error efforts. Before performing surgery on these institutions, we suggest that “speculative” regulatory proposals should not adopted whose ultimate effects are unknown.
Keywords: commodity futures, speculation, hedging, price volatility, policy
JEL Classification: G1, G18
Suggested Citation: Suggested Citation