Modeling the determinants of commodity prices

Abstract

This article proposes a model for determining the real prices of commodities integrating the developments of Frankel & Rose (2010) together with the previous works of Deaton & Laroque (1992, 2003). A Time-Series Cross-Section model is estimated on eight relevant raw materials for Argen-tina between 1960-2010. The model considers idiosyncratic and common factors, short-term and long-term effects, and the non-stationary nature of the variables. In particular, the exogeneity of the variables and the grouping of observations in a panel are evaluated. The results show that prices depend, in the long run, on individual production, China's GDP as the leading emerging economy, and the United States exchange rate. In the short term, economic growth in China and OECD countries, the variation in the US exchange rate and monetary base, and changes in inventories were significant.

Date of presentation: 03-09-2020

Date of approval: 10-29-2020

JEL classification: C23 ; Q11