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

28 Pages Posted: 13 Feb 2006

See all articles by Paul Anthony Cashin

Paul Anthony Cashin

International Monetary Fund (IMF)

C. John McDermott

Reserve Bank of New Zealand

Date Written: May 2001

Abstract

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 1862-99, and have two main findings. First, while there has been a downward trend in real commodity prices of 13 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. While there is a downward trend in real commodity prices, this is of little practical policy relevance as it is small and completely dominated by the variability of prices.

Keywords: Commodity prices, trends, cycles, variability

JEL Classification: E32, Q11

Suggested Citation

Cashin, Paul Anthony and McDermott, C. John, The Long-Run Behavior of Commodity Prices: Small Trends and Big Variability (May 2001). IMF Working Paper No. 01/68, Available at SSRN: https://ssrn.com/abstract=879565

Paul Anthony Cashin (Contact Author)

International Monetary Fund (IMF) ( email )

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C. John McDermott

Reserve Bank of New Zealand ( email )

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