Hostname: page-component-669899f699-8p65j Total loading time: 0 Render date: 2025-04-28T04:47:04.440Z Has data issue: false hasContentIssue false
  • English
  • Français

150 YEARS OF BOOM AND BUST: WHAT DRIVES MINERAL COMMODITY PRICES?

Published online by Cambridge University Press:  09 September 2016

Martin Stuermer
Martin Stuermer*
Affiliation:
Federal Reserve Bank of Dallas
*
Address correspondence to: Martin Stuermer, Research Department, Federal Reserve Bank of Dallas, 2200 N. Pearl St., Dallas, TX 75201, USA; e-mail: [email protected].
Get access Rights & Permissions [Opens in a new window]

Abstract

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.

Keywords

Mineral Commodity PricesDemand and Supply ShocksSVAR
Type
Articles
Information
Macroeconomic Dynamics , Volume 22 , Special Issue 3: Dynamics of Oil and Commodities Prices , April 2018 , pp. 702 - 717
Copyright
Copyright © Cambridge University Press 2016 

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.)

Article purchase

Temporarily unavailable

Footnotes

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.

References

REFERENCES

Aghion, Peter W. and Howitt, Philippe (1998) Endogenous Growth Theory. Cambridge, MA: MIT Press.Google Scholar
Alquist, Ron and Kilian, Lutz (2010) What do we learn from the price of crude oil futures? Journal of Applied Econometrics 25, 539–573.Google Scholar
Anderson, Soren T., Kellogg, Ryan, and Salant, Stephen W. (2014) Hotelling Under Pressure. NBER working paper no. 20280.CrossRefGoogle Scholar
Arrow, Kenneth J. and Chang, Sheldon (1982) Optimal pricing, use, and exploration of uncertain natural resource stocks. Journal of Environmental Economics and Management 9 (1), 1–10.CrossRefGoogle Scholar
Barsky, Robert B. and Kilian, Lutz (2002) Do we really know that oil caused the great stagnation? A monetary alternative. In Bernanke, Ben S. and Rogoff, Kenneth (eds.), NBER Macroeconomics Annual 2001, vol. 16, pp. 137–198. Cambridge, MA: MIT Press.CrossRefGoogle Scholar
Blanchard, Olivier J. and Quah, Danny (1989) The dynamic effects of aggregate demand and supply disturbances. American Economic Review 79 (4), 655–673.Google Scholar
Cairns, Robert D. and Lasserre, Pierre (1986) Sectoral supply of minerals of varying quality. Scandinavian Journal of Economics 88 (4), 605–626.CrossRefGoogle Scholar
Carter, Colin A., Rausser, Gordon C., and Smith, Aaron (2011) Commodity booms and busts. Annual Review of Resource Economics 3, 87–118.Google Scholar
Chandler, Alfred D. (1990) Scale and Scope. Cambridge, MA: The Belknap Press of Harvard University Press.Google Scholar
Cuddington, John T. and Jerrett, Daniel (2008) Super cycles in real metals prices? IMF Staff Papers 55 (4), 541–565.Google Scholar
Erten, Bilge and Ocampo, José A. (2013) Super cycles of commodity prices since the mid-nineteenth century. World Development 44, 14–30.CrossRefGoogle Scholar
Findlay, Ronald and O'Rourke, Kevin H. (2007) Power and Plenty. Trade, War, and the World Economy in the Second Millennium. Princeton, NJ: Princeton University Press.Google Scholar
Fourgeaud, Claude, Lenclud, Bernard, and Michel, Philippe (1982) Technological renewal of natural resource stocks. Journal of Economic Dynamics and Control 4 (1), 1–36.Google Scholar
Frankel, Jeffrey A. and Hardouvelis, Gikas A. (1985) Commodity prices, money surprises and Fed credibility. Journal of Money, Credit and Banking 17 (4), 425–438.Google Scholar
Gibson-Jarvie, Robert (1983) The London Metal Exchange: A Commodity Market. Herts, UK: Woodhead-Faulkner.Google Scholar
Goncalves, Silvia and Kilian, Lutz (2004) Bootstrapping autoregressions with conditional heteroskedasticity of unknown form. Journal of Econometrics 123 (1) 89–120.CrossRefGoogle Scholar
Groth, Christian (2007) A new growth perspective on non-renewable resources. In Bretschger, Lucas and Smulders, Sjak (eds.), Sustainable Resource Use and Economic Dynamics, pp. 127–163. Dordrecht, Netherlands: Springer.CrossRefGoogle Scholar
Gustafson, Robert L. (1958) Implications of recent research on optimal storage rules. Journal of Farm Economics 40 (2), 290–300.Google Scholar
Hamilton, James D. (2008) Oil and the macroeconomy. In Durlauf, Steven and Blume, Lawrence (eds.), The New Palgrave Dictionary of Economics, 2nd ed. London: Palgrave MacMillan Ltd.CrossRefGoogle Scholar
Hotelling, Harold (1931) The economics of exhaustible resources. Journal of Political Economy 39 (2), 137–175.Google Scholar
International Monetary Fund (2012) World Economic Outlook. Growth Resuming, Dangers Remain. Washington, DC: International Monetary Fund.Google Scholar
Jacks, David S. (2013) From Boom to Bust: A Typology of Real Commodity Prices in the Long Run. NBER working paper no. 18874.Google Scholar
Jacks, David S., O'Rourke, Kevin H., and Williamson, Jeffrey G. (2011) Commodity price volatility and world market integration since 1700. Review of Economics and Statistics 93 (3), 800–813.Google Scholar
Kilian, Lutz (2008) Exogenous oil supply shocks: How big are they and how much do they matter for the US economy? Review of Economics and Statistics 90 (2), 216–240.Google Scholar
Kilian, Lutz (2009) Not all oil price shocks are alike: Disentangling demand and supply shocks in the crude oil market. American Economic Review 99 (3), 1053–1069.CrossRefGoogle Scholar
Kilian, Lutz and Lee, Thomas K. (2014) Quantifying the speculative component in the real price of oil: The role of global oil inventories. Journal of International Money and Finance 42, 71–87.Google Scholar
Kilian, Lutz and Murphy, Daniel P. (2014) The role of inventories and speculative trading in the global market for crude oil. Journal of Applied Econometrics 29 (3), 454–478.Google Scholar
Klovland, Jan T. (2005) Commodity market integration 1850–1913: Evidence from Britain and Germany. European Review of Economic History 9 (2), 163–197.Google Scholar
Labys, Walter C. (2008) Modeling and Forecasting of Primary Commodity Prices. Burlington, NJ: Ashgate.Google Scholar
Maddison, Angus (2010) Historical Statistics of the World Economy: 1–2008 AD. http://www.ggdc.net/maddison/ (accessed on June 13, 2011).Google Scholar
O'Rourke, Kevin H. and Williamson, Jeffrey G. (1994) Late nineteenth-century Anglo-American factor-price convergence: Were Heckscher and Ohlin right? Journal of Economic History 54 (4), 892–916.CrossRefGoogle Scholar
Pindyck, Robert S. (1980) Uncertainty and exhaustible resource markets. Journal of Political Economy 88 (6), 1203–1225.CrossRefGoogle Scholar
Radetzki, Marian (2008) A Handbook of Primary Commodities in the Global Economy. Cambridge, UK: Cambridge University Press.Google Scholar
Schmitz, Christopher C. (1979) World Non-Ferrous Metal Production and Prices 1700–1976. London: Frank Cass.Google Scholar
Slade, Margaret E. (1991) Market structure, marketing method, and price instability. Quarterly Journal of Economics 106 (4), 1309–1340.Google Scholar
Slade, Margaret E. and Thille, Henry (2006) Commodity spot prices: An exploratory assessment of market structure and forward-trading effects. Economica 73 (290), 229–256.Google Scholar
Stiglitz, Joseph (1974) Growth with exhaustible natural resources: Efficient and optimal growth paths. Review of Economic Studies 41, 123–137.Google Scholar
Stuermer, Martin (2014) Industrialization and the Demand for Mineral Commodities. Dallas Fed working paper no. 1413.Google Scholar
Stuermer, Martin and Schwerhoff, Gregor (2015) Non-Renewable Resources, Extraction Technology, and Endogenous Growth. Dallas Fed working paper no. 1506.Google Scholar
Thoburn, John (1994) Tin in the World Economy. Edinburgh, UK: Edinburgh University Press.Google Scholar
Wellmer, Friedrich-Wilhelm (1992) The concept of lead time. Minerals Industry International 1005, 39–40.Google Scholar
World Trade Organization (2010) World Trade Report 2010. Trade in Natural Resources. Geneva: World Trade Organization.Google Scholar
Wright, Brian W. and Williams, Jeffrey C. (1982) The economic role of commodity storage. Economic Journal 92 (367), 596–614.Google Scholar