Sharp Breaks or Smooth Shifts? An Investigation of the Evolution of Primary Commodity Prices

Abstract

This paper explores the behavior of real commodity prices over a 50–year period. Attention is given to how the shifting means for various commodity prices have changed with a special emphasis on behavior since the mid 2000s. To identify structural changes in commodity prices, we estimate shifting–mean autoregressions by using: the Bai and Perron (1998) procedure for determining structural breaks; low frequency Fourier functions; and a procedure that specifies shifts to be smooth logistic functions of time. We find that the pattern in the timing of shifts is suggestive of the causal factors underlying the recent boom.

Keywords: nonlinear trends, shifting–mean autoregression, unit root tests