On primary commodity prices: The impact of macroeconomic/monetary shocks

The hypothesis of a long-run quantifiable relationship between non-oil primary commodity prices and macroeconomic/monetary variables-focusing industrial production and effective exchange rate of the US dollar-is tested by cointegration technique using quarterly data for 1970q2-93q3. This confirmed equilibrium adjustment explains the origin of the observed coincidence of commodity price variations with the fluctuations of macroeconomic/monetary variables. An error correction specification, including interest rate, is therefore applied to estimate the observed disequilibrium prices of commodities in the context of steady-state solutions. This instantaneous adjustment explains why commodity prices have fluctuated more strongly over-the last 2 decades than before. (C) 1998 Society for Policy Modeling. Published by Elsevier Science Inc.