THE RELATIVE VOLATILITY OF COMMODITY PRICES: A REAPPRAISAL
Rabah Arezki, Daniel Lederman and Hongyan Zhao[1]
No. E2011005 November 29, 2011
Abstract This paper studies the volatility of commodity prices on the basis of a large dataset of monthly prices observed in international trade data from the United States over the period 2002 to 2011. The conventional wisdom in academia and policy circles is that primary commodity prices are more volatile than those of manufactured products, even though most of the existing evidence does not actually attempt to measure the volatility of prices of individual goods or commodities. Rather the literature tends to focus on trends in the evolution and volatility of ratios of price indexes composed of multiple commodities and products. This approach can be misleading. Indeed, the evidence presented in this paper suggests that on average prices of individual primary commodities may be less volatile than those of individual manufactured goods.
Keywords: International Commodity Prices, Volatility, Manufactured Product Prices
JEL classification: F14, E32, C43
No. E2011005.pdf[1] International Monetary Fund (Arezki), World Bank (Lederman) and University of California, Berkeley (Zhao). Contact e-mail: rarezki@imf.org; Dlederman@worldbank.org; hyzhao@econ.berkeley.edu. We thank Olivier Cadot, Kaddour Hadri, Jeffrey Frankel, Caroline Freund, Gaston Gelos, Antoine Heuty, Mico Loretan, Mustapha Nabli, Chris Papageorgiou, Jim Rowe, and Liugang Sheng for useful comments and discussions. All remaining errors are ours. The views expressed in this paper are those of the authors and do not necessarily reflect those of the International Monetary Fund or of the World Bank , its Board of Directors or the countries they represent.
