Commodity Prices: Cyclical Weakness or Secular Decline?

58 Pages Posted: 15 Feb 2006

See all articles by Carmen M. Reinhart

Carmen M. Reinhart

Peter G. Peterson Institute for International Economics; National Bureau of Economic Research (NBER)

Peter Wickham

International Monetary Fund (IMF)

Date Written: January 1994

Abstract

Primary commodities still account for the bulk of exports in many developing countries. However, real commodity prices have been declining almost continuously since the early 1980s and there is evidence of renewed weakness. The appropriate policy response to a terms of trade shock depends importantly on whether the shock is perceived to be temporary or permanent. Our results indicate that the recent weakness in commodity prices is mostly of a secular nature, stressing the need for commodity exporting countries to concentrate on export diversification and other structural policies. There is, however, scope for stabilization funds and the use of hedging strategies since the evidence also suggests commodity prices have become more volatile.

JEL Classification: C22, E3, E61

Suggested Citation

Reinhart, Carmen M. and Wickham, Peter, Commodity Prices: Cyclical Weakness or Secular Decline? (January 1994). IMF Working Paper, Vol. , pp. 1-58, 1994. Available at SSRN: https://ssrn.com/abstract=883423

Carmen M. Reinhart (Contact Author)

Peter G. Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Peter Wickham

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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