Hostname: page-component-cd9895bd7-gxg78 Total loading time: 0 Render date: 2024-12-18T14:43:59.508Z Has data issue: false hasContentIssue false
  • English
  • Français

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

Published online by Cambridge University Press:  27 March 2014

Serhan Cevik  and
Tahsin Saadi Sedik
Serhan Cevik*
Affiliation:
International Monetary Fund, 1900 Pennsylvania Avenue, NW, Washington, DC 20431 United States
Tahsin Saadi Sedik
Affiliation:
International Monetary Fund, 700 19th Street, NW, Washington, DC 20431, United States; e-mail: [email protected].
*
(corresponding author). e-mail: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper explores empirically the causes of extreme fluctuations in commodity prices from January 1990 to June 2010 and seeks to identify the relative contribution of advanced and emerging market economies to the changes in commodity prices. Our assumption is that analyzing two very distinct goods—crude oil and fine wine—helps to identify common determinants of commodity prices. We find that the growth rate of global aggregate demand is the key macroeconomic determinant of the fluctuations in both crude oil and fine wine prices over the sample period. While advanced economies account for more than half of global consumption, emerging market and developing economies make up the bulk of the incremental change in demand, thereby having a greater weight in commodity price formation. The coefficient of emerging market industrial output growth is about three times as high as that of advanced economies in oil price regressions and almost five times as powerful in fine wine price regressions. The results also show that the shift in the composition of aggregate commodity demand is a recent phenomenon. (JEL Classifications: Q11, Q39, Q41, Q43)

Keywords

commodity pricescomovementcrude oilemerging economiesfine wineglobal growth
Type
Articles
Information
Journal of Wine Economics , Volume 9 , Issue 1 , May 2014 , pp. 34 - 50
Copyright
Copyright © American Association of Wine Economists 2014 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

*

We thank, without implication, Paul Cashin, Joshua Charap, Reda Cherif, Harry de Gorter, Katerina Kalcheva, Lutz Kilian, Joannes Mongardini, David Robinson, Abdelhak Senhadji, Karl Storchmann, Fatih Yilmaz, and participants at the G-20 Workshop on Commodities in Buenos Aires, Argentina, and at the Inflation Risk Conference organized by the Toulouse School of Economics, Paris, France, for their insightful comments and suggestions. We are also grateful for the cooperation of Liv-ex Fine Wine Exchange. The views expressed herein are those of the authors and should not be attributed to the IMF, its Executive Board, or its management.

References

Arze del Granado, J., Coady, D., and Gillingham, R. (2010). The unequal benefits of fuel subsidies: A review of evidence for developing countries. IMF Working Paper WP/10/202, International Monetary Fund, Washington, DC.Google Scholar
Barsky, R., and Kilian, L. (2001). Do we really know that oil caused the great stagflation? A monetary alternative. NBER Working Paper 8389, National Bureau of Economic Research, Cambridge, MA.Google Scholar
Barsky, R., and Kilian, L. (2004). Oil and the macroeconomy since the 1970s. Journal of Economic Perspectives, 18, 115–134.Google Scholar
Belke, A., Bordon, I., and Hendricks, T. (2010). Global liquidity and commodity prices—A co-integrated VAR approach for OECD countries. Applied Financial Economics, 20, 227–242.CrossRefGoogle Scholar
Borensztein, E., and Reinhart, C. (1994). The macroeconomic determinants of commodity prices. IMF Staff Papers, 41, 236–261.CrossRefGoogle Scholar
Bouri, E. (2013). Do fine wines blend with crude oil? Seizing the transmission of mean and volatility between two commodity prices. Journal of Wine Economics, 8, 49–68.Google Scholar
British Petroleum (BP). (2010). Statistical Review of World Energy. London: BP.Google Scholar
Cardebat, J.-M., and Figuet, J.-M. (2004). What explains Bordeaux wine prices? Applied Economics Letters, 11, 293–296.Google Scholar
Cashin, P., and McDermott, C. (2002). The long-run behavior of commodity prices: Small trends and big variability. IMF Staff Papers, 49, 175–199.Google Scholar
Cashin, P., McDermott, C., and Scott, A. (1999). The myth of comoving commodity prices. IMF Working Paper 99/169, International Monetary Fund, Washington, DC.Google Scholar
Cevik, S., and Saadi Sedik, T. (2011). A barrel of oil or a bottle of wine: How do global growth dynamics affect commodity prices? IMF Working Paper 11/1, International Monetary Fund, Washington, DC.Google Scholar
Drabik, D. (2011). The theory of biofuel policy and food grain prices. Charles H. Dyson School of Applied Economics and Management Working Paper 2011–20, Cornell University, Ithaca.CrossRefGoogle Scholar
de Gorter, H., and Just, D. (2009a). The welfare economics of a biofuel tax credit and the interaction effects with price contingent farm subsidies. American Journal of Agricultural Economics, 91, 477–488.Google Scholar
de Gorter, H., and Just, D. (2009b). The economics of a blend mandate for biofuels. American Journal of Agricultural Economics, 91, 738–750.Google Scholar
de Gorter, H., Drabik, D., and Just, D.. (2013). Biofuel policies and food grain commodity prices, 2006–2012: All boom and no bust? AgBioForum, 16, 1–13.Google Scholar
Energy Information Administration (EIA). (2010). Annual Energy Outlook 2010. Washington, DC: U.S. Department of Energy.Google Scholar
Frankel, J., and Rose, A. (2009). Determinants of agricultural and mineral commodity prices. In Fry, R., Jones, C., and Kent, C., eds., Inflation in an Era of Relative Price Shocks. Sydney: Reserve Bank of Australia, 9–51.Google Scholar
Gergaud, O. (1999). Estimation d'une function de prix hédonistiques pour le vin de Champagne. Economie et Prévision, 136, 390–402.Google Scholar
Hamilton, J. (2009). Understanding crude oil prices. Energy Journal, 30, 179–206.Google Scholar
Jones, G., and Storchmann, K. (2001). Wine market prices and investment under uncertainty: An econometric model for Bordeaux crus classés. Agricultural Economics, 26, 115–133.Google Scholar
Kilian, L. (2008). The economic effects of energy price shocks. Journal of Economic Literature, 46, 871–909.Google Scholar
Kilian, L. (2009). Not all oil price shocks are alike: Disentangling demand and supply shocks in the crude oil market. American Economic Review, 99, 1053–1069.CrossRefGoogle Scholar
Kilian, L., and Hicks, B. (2009). Did unexpectedly strong economic growth cause the oil price shock of 2003–2008? CEPR Discussion Paper 7265, Center for Economic Policy Research, London.Google Scholar
Kilian, L., and Murphy, D. (2010). The role of inventories and speculative trading in the global market for crude oil. CEPR Discussion Paper 7753, Center for Economic Policy Research, London.Google Scholar
MacKinnon, J. G. (1996). Numerical distribution function for unit root and cointegration tests. Journal of Applied Econometrics, 11, 601–618.Google Scholar
Lecocq, S., and Visser, M. (2006). What determines wine prices: Objective vs. sensory characteristics. Journal of Wine Economics, 1, 42–56.CrossRefGoogle Scholar
Leybourne, S., Lloyd, T., and Reed, G. (1994). The excess comovement of commodity prices revisited. World Development, 22, 1747–1758.Google Scholar
Liv-ex, available at http://liv-ex.com/home.do/.Google Scholar
Organisation Internationale de la Vigne et du Vin (OIV), available at www.oiv.int/oiv/cms/index/.Google Scholar
Palaskas, T., and Varangis, P. (1991). Is there excess comovement of primary commodity prices? A cointegration test. World Bank Working Paper 758, World Bank, Washington, DC.Google Scholar
Pindyck, R., and Rotemberg, J. (1990). The excess comovement of commodity prices. Economic Journal, 100, 1173–1189.Google Scholar
Saadi-Sedik, T., and Petri, M. (2006). To smooth or not to smooth—The impact of grants and remittances on the equilibrium real exchange rate in Jordan. IMF Working Paper 06/257, International Monetary Fund, Washington, DC.Google Scholar
Thomas, A., Mühleisen, M., and Pant, M. (2010). Peaks, spikes, and barrels: Modeling sharp movements in oil prices. IMF Working Paper 10/186. International Monetary Fund, Washington, DC.Google Scholar
Wirl, F. (2008). Why do oil prices jump (or fall)? Energy Policy, 36, 1029–1043.CrossRefGoogle Scholar