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Primary commodity prices and macroeconomic variables : a long run relationship

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  • Palaskas, Theodosios
  • Varangis, Panos

Abstract

In recent years, fluctuations in such macroeconomic variables as interest rates and exchange rates appear to have significantly affected primary commodity prices. This paper studies the relationship between commodity prices and various macroeconomic variables. It focuses particularly on interest rates because of the important role they play in the portfolio adjustment model, in which investors move between commodities, bonds and money as interest rates change. The paper concludes that there is a long run quantifiable relationship between real interest rates and real commodity prices, but not between real commodity prices and either consumer prices or the money supply. Commodity prices in nominal terms strongly affect consumer prices but not the reverse - and some groups of commodity prices can be reliable indicators of movements in consumer prices. Changes in the money supply affect commodity prices, but not the reverse, and the relationship is not quantifiable.

Suggested Citation

  • Palaskas, Theodosios & Varangis, Panos, 1989. "Primary commodity prices and macroeconomic variables : a long run relationship," Policy Research Working Paper Series 314, The World Bank.
    • Handle: RePEc:wbk:wbrwps:314
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    Cited by:

    1. Madziwa, Lawrence & Pillalamarry, Mallikarjun & Chatterjee, Snehamoy, 2022. "Gold price forecasting using multivariate stochastic model," Resources Policy, Elsevier, vol. 76(C).
    2. Swaray, Raymond, 2011. "Commodity buffer stock redux: The role of International Cocoa Organization in prices and incomes," Journal of Policy Modeling, Elsevier, vol. 33(3), pages 361-369, May.
    3. Palaskas, Theodosios B. & Varangis, Panos N., 1991. "Is there excess co-movement of primary commodity prices? A co-integration test," Policy Research Working Paper Series 758, The World Bank.
    4. Rossen, Anja, 2015. "What are metal prices like? Co-movement, price cycles and long-run trends," Resources Policy, Elsevier, vol. 45(C), pages 255-276.
    5. Varangis, Panos, 1990. "How integrated are tropical timber markets?," Policy Research Working Paper Series 465, The World Bank.
    6. Qian, Ying, 1990. "Do steel prices move together? : a cointegration test," Policy Research Working Paper Series 453, The World Bank.

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