Commodity%20Price%20Booms%20and%20Breaks%3A%20Detection%2C%20Magnitude%20and%20Implications%20for%20Developing%20Countries

Working Papers

Commodity Price Booms and Breaks: Detection, Magnitude and Implications for Developing Countries


CODE: IDB-WP-444
AUTHOR(s): Mariscal, Rodrigo , Powell, Andrew
PUBLISHED: January 2014
LANGUAGE: English
RELATED TOPICS: Finance
DOWNLOAD FILE IN: English

Abstract:

There has been much interest of late regarding the current commodity “super cycle”. However, even sizing the current boom implies knowledge of long-run trends that are notoriously difficult to estimate. This paper uses new techniques to identify breaks in commodity prices and estimate trends and cointegrating relationships and argues that the weight of evidence is against a stable declining commodity terms of trade. The results are used to characterize the current boom and, assuming no new break, how commodity prices would be expected to return to the estimated “equilibrium”. The paper also discusses implications for commodity-dependent developing countries.

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