The Relative Volatility of Commodity Prices: A Reappraisal
IMF Working Papers, December 1, 2011
Source details
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- The Relative Volatility of Commodity Prices: A Reappraisal
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Bibliographic details
- Authors: Rabah Arezki, Daniel Lederman, Hongyan Zhao
- Published: December 1, 2011
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781463925963.001
Summary and research question
- Studies the volatility of commodity prices using a large dataset of monthly prices observed in international trade data from the United States over the period 2002 to 2011.
- Notes conventional wisdom: primary commodity prices are more volatile than manufactured product prices.
- Observes that much existing evidence focuses on trends in ratios of price indexes composed of multiple commodities and products, rather than on prices of individual goods or commodities.
- Argues that the index-ratio approach can be misleading for assessing volatility of individual goods.
Data and approach
- Dataset: large set of monthly prices from U.S. international trade data.
- Time coverage: 2002 to 2011.
- Focus: volatility of prices at the level of individual primary commodities and individual manufactured goods (rather than aggregate index ratios).
Main findings
- Evidence suggests that on average prices of individual primary commodities may be less volatile than those of individual manufactured goods.
- Challenges the conventional view that primary commodity prices are inherently more volatile when measured at the individual-good level rather than via aggregate price-index ratios.
Policy and analytical implications
- Recommends caution in using aggregate price-index ratios to infer volatility properties of underlying individual goods or commodities.
- Implies that policy analysis and risk management that rely on the assumption of higher primary commodity volatility should reconsider that assumption when based on individual-good price behavior.
Publication metadata (for reference)
- Authors: Rabah Arezki, Daniel Lederman, Hongyan Zhao
- Date: December 1, 2011
- Series: IMF Working Papers; Working Paper No. 2011/279
- Pages: 23
- DOI: https://doi.org/10.5089/9781463925963.001
Source: IMF Working Paper "The Relative Volatility of Commodity Prices: A Reappraisal" by Rabah Arezki, Daniel Lederman, and Hongyan Zhao, December 1, 2011.