A Barrel of Oil or a Bottle of Wine: How Do Global Growth Dynamics Affect Commodity Prices?
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Summary:
This paper investigates the causes of extreme fluctuations in commodity prices from 1990 to 2010. Analyzing two very distinct commodities-crude oil and fine wine, we find that macroeconomic factors are the main determinants of commodity prices. Although supply constraints have the expected effect, aggregate demand growth is the key factor. The empirical results show that while advanced economies account for more than half of global consumption, emerging economies make up the bulk of the incremental change in demand, thereby having a greater weight in commodity price formation. The results also show that the shift in the composition of aggregate commodity demand is a recent phenomenon.
Series:
Working Paper No. 2011/001
Subject:
Asset and liability management Commodities Commodity prices Emerging and frontier financial markets Excess liquidity Financial markets Oil Oil prices Prices
English
Publication Date:
January 1, 2011
ISBN/ISSN:
9781455211791/1018-5941
Stock No:
WPIEA2011001
Pages:
19
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