Published online by Cambridge University Press: 09 September 2016
This paper provides long-run evidence on the dynamic effects of supply and demand shocks on commodity prices. I assemble and analyze a new data set of price and production levels of copper, lead, tin, and zinc from 1840 to 2014. Using a novel approach to identification, I show that price fluctuations are primarily driven by demand, rather than supply shocks. Demand shocks affect the price for up to 15 years, whereas the effect of mineral supply shocks persists for up to 5 years. Price surges caused by rapid industrialization are a recurrent phenomenon throughout history. Mineral commodity prices return to their declining or stable trends in the long run.
I am grateful to the editors and anonymous reviewers for insightful comments and suggestions. I thank Juergen von Hagen, Robert Pindyck, Lutz Kilian, Friedrich-Wilhelm Wellmer, Joerg Breitung, Martin Hellwig, Dirk Krueger, Christiane Baumeister, Gordon Rausser, Aaron Smith, Scott Irvin, Martin Helbling, Mine Yucel, Michael Plante, Dirk Foremny, Benjamin Born, Felix Wellschmied, Peter Wolff, Ulrich Volz, Ingo Bordon, Peter Buchholz, and Doris Homberg-Heumann for helpful comments, as well as seminar participants at UC Berkeley, UC Davis, University of Illinois at Urbana-Champaign, Michigan SU, IMF, ECB, FRB Dallas, Federal Reserve Board, University of Bonn, University of Cologne, DIW Berlin, UC Louvain, the AEA meeting in Philadelphia, the EEA meeting in Gothenburg, and the EHA meeting in Boston. I acknowledge grants from the German Development Institute, editing by Michael Weiss, Rodney Sayer, Thomas Rice, and Colin Cote, and research assistance by Achim Goheer, Ines Gorywoda, Stefan Wollschlaeger, Philipp Korfmann, Marcus Biermann, and Andreas Hoffmann. The views in this paper are those of the author and do not necessarily reflect the views of the Federal Reserve Bank of Dallas or the Federal Reserve System. An online appendix, MATLAB codes, and the data set are available at https://sites.google.com/site/mstuermer1 or from the author upon request.
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