A reexamination of trends in primary commodity prices

The long-run behaviour of the terms of trade between primary commodities and manufactures: a panel data approach

“…the models in Equations (1) and (2), are never selected. This finding is in sharp contrast with the earlier work by León and Soto (1997), Kellard and Wohar (2006) and Ghoshray (2011), who find that there is no evidence of structural breaks in some commodities. Second, the results suggest that there are ten commodities (namely coffee, cocoa, beef, lamb, banana, palm oil, cotton, rubber, timber and aluminium) for which the position of the break does not change as the sample period is extended.…”

“…According to Cuddington and Urzúa (1989), this finding, strictly speaking, does not support the views of PS, because the latter refer to a secular terms of trade deterioration. 7 Third, von Hagen (1989), Cuddington (1992), Newbold and Vougas (1996), Kim et al (2003), Kellard and Wohar (2006), Harvey et al (2010) and Ghoshray (2011) do not find strong support for the PS hypothesis.…”

“…Grilli and Yang (1988) construct a US dollar commodity price index spanning from 1900 to 1986, consisting of 24 internationally traded non-fuel commodities. The Grilli and Yang (GY) dataset has become the most widely used data source in the literature related to the PS hypothesis; see, among others, Cuddington andUrzúa (1989), von Hagen (1989), Perron (1990), Powell (1991), Helg (1991), Ardeni and Wright (1992), Bleaney and Greenaway (1993), Newbold and Vougas (1996), León and Soto (1997), Kim et al (2003), Zanias (2005), Kellard and Wohar (2006) and Ghoshray (2011). However, it is worth mentioning that the work of GY is not only important because they constructed a consistent dataset over a long period of time, but also because it is perhaps the first study that tests whether commodity prices can be viewed as trend-stationary (TS) or difference-stationary (DS) processes, based on the ADF unit root test of Dickey and Fuller (1979).…”

“…We employ the commodity price index dataset constructed by Grilli and Yang (1988) for the period 1900-86, and extended to 2010 by Stephan Pfaffenzeller, for a total of 111 time observations; the sample period is thus seven years longer than that recently analysed by Ghoshray (2011). 11 The dataset consists of price information on 24 commodities that account for (approximately) 54 per cent of all non-fuel commodities traded in the world in the period 1977-79; see Grilli and Yang (1988: footnote 2).…”

“…In what follows, we use Table 2 to compare our results on the position of break dates with the dates reported by León and Soto (1997), Kellard and Wohar (2006), and Ghoshray (2011). We focus on the commodities for which there is evidence of one structural break, and regard discrepancies of up to two years in the break date (in either direction) as negligible.…”