A Barrel of Oil or a Bottle of Wine: How Do Global Growth Dynamics Affect Commodity Prices?

January 1, 2011

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

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.

Subject: Asset and liability management, Commodities, Commodity prices, Emerging and frontier financial markets, Excess liquidity, Financial markets, Oil, Oil prices, Prices

Keywords: commodity, commodity price, Commodity prices, Comovement, crude oil, demand, Emerging and frontier financial markets, Emerging economies, emerging market economy, Excess liquidity, Global, Global growth, Oil, oil price regression, Oil prices, price, price fluctuation, price pressure, Wine, wine price, WP

Pages:
19
Volume:
2011
DOI:
https://doi.org/10.5089/9781455211791.001
Issue:
001
Series:
Working Paper No. 2011/001
Stock No:
WPIEA2011001
ISBN:
9781455211791
ISSN:
1018-5941

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