Commodity Price Movements Research Articles

Commodity prices and international Inflation, 1851–1913

This paper uses annual data to study the impact of commodity prices on consumer prices in 15 economies from 1851 to 1913. We calculate a simple measure of the common component of commodity prices which co-moves with the international business cycle and Granger causes consumer price inflation. Commodity prices are significant in standard inflation equations estimated by OLS in 14 of 15 economies. Estimating these equations using real shipping costs as an instrument suggests that commodity price movements associated with shifts in demand arising from international business cycles have a particularly large impact on inflation.

Do supercycles dominate commodity price movements?

This study utilizes a frequency domain approach to decompose the prices of 21 primary commodities into transitory, supercycle, and permanent components from 1900 to 2022. The results reveal the presence of four heterogenous supercycles, with an average duration of 24 years. These cycles, however, contribute only modestly to price variability while the permanent component contributes the most. The paper also shows that different commodities are consistent with various theories of price movements, including Engel's law, Hotelling's rule, and Schumpeter's cyclicality (or Kondratieff's waves).

Exogenous oil supply shocks and global agricultural commodity prices: The role of biofuels

Using quarterly data ranging from 1986Q1 to 2019Q4, this paper identifies an oil supply shock that is exogenous to global real economic activity in the impact quarter based on the proxy structural vector autoregressions (SVAR). Then, the impact of this shock on global agricultural commodity prices is examined, with a particular focus on the role of biofuels in distributing the impact of this shock on global food commodity prices. We find that unfavorable exogenous oil supply shocks have a significant positive effect on global agricultural commodity prices. Moreover, the significant positive effect of the unfavorable exogenous oil supply shock on global agricultural commodity prices is primarily attributable to the impact of the shock on the prices of oils, meals and grains, which are all key biofuel feedstocks. We find evidence that unfavorable exogenous oil supply shocks affect global food commodity prices partly through the biofuel production channel. Finally, we uncover that exogenous oil supply shocks have played an important role in historical food commodity price movements, especially since the early 2000s. These findings are very useful for policymakers in understanding the relationship between oil supply shocks and global agricultural commodity price fluctuations.

A study on interplay of commodity price movements and equity returns in the Indian market

A study on interplay of commodity price movements and equity returns in the Indian market

Dependency revisited: commodities, commodity-related capital flows and growth models in emerging economies

The growth model perspective has provided avenues for bridging comparative and international political economy, mainly regarding the Global Financial Crisis and developments within the eurozone. This article aims to contribute to this endeavor by highlighting the joint effects of capital flows and commodity price swings on growth models in emerging capitalist economies. While the literature on dependent financialization has primarily focused on debt-led growth in the Global South, we spell out the negative implications of commodity-based export-led growth. To this end, we first present a stylized depiction of commodity dependence and provide descriptive statistical evidence of its global prevalence. Subsequently, we trace the co-movement of capital flows to emerging economies and commodity prices. We argue that this ‘commodity–finance nexus’ reinforces the pro-cyclical nature of commodity-based growth, financial volatility, and the vulnerability to global boom–bust cycles. Furthermore, we demonstrate that the conventional method for establishing growth models by calculating the relative contributions to growth is ill-suited to capture the commodity-based export-led growth model of highly commodity-dependent economies. Finally, we identify commodity price movements and fiscal policies as major drivers of growth, with an important role for domestic politics as an intervening variable.

Factors Influencing the Prices of Red Chili and Shallots in Indonesia: Analysis of the Impact on the Global Market

Movements in international commodity prices became significant when three stages of crisis occurred in the world economy, namely the world oil price crisis, the global financial crisis and the world food price crisis. This situation can have an impact on Indonesia's economic growth. The objectives of this research are: 1 Do fluctuations in world oil prices affect the prices of chilies and shallots in Indonesia (2) Do fluctuations in the rupiah exchange rate affect the prices of chilies and shallots in Indonesia (3) Do global prices of chilies and shallots influence the prices of chilies and shallots in Indonesi. The information used is secondary time series data from 1980 to 2019 . The food commodities being studied are : world price of chilies and shallots , value Rupiah exchange , price world oil as well price chilies and onions red Domestically , based on estimation results, it shows that international prices such as world oil prices have a significant positive effect on domestic prices of chilies and shallots . The Rupiah exchange rate has a significant positive effect on the price of chilies and shallots in Indonesia, while the world price of chilies and shallots has a negative effect and has no This is significant for the price of chilies and shallots in the country. This is because chilies and shallots are products that are widely produced domestically. Most of the Chilies and Shallots sold in Indonesia are domestically produced, so the prices of Chilies and Shallots in Indonesia are more influenced by production costs and government policies and supply and demand in the Indonesian market. This can be done by improving infrastructure, especially transportation networks and storage facilities. Empowering farmers by providing financial and technical support. Developing different food sources to reduce dependence on limited food sources, and consumer protection with fair prices for consumers as well as providing support for subsidy programs needed to help stabilize food prices

Commodity prices and business cycles in small open economies: the role of news shocks

PurposeThe authors explore the hypothesis that some movements in commodity prices are anticipated (news shocks) and can trigger aggregate fluctuations in small open emerging economies. This paper aims to discuss the aforementioned objective.Design/methodology/approachThe authors build a multi-sector dynamic stochastic general equilibrium model with endogenous commodity production. There are five exogenous processes: a country-specific interest rate shock that responds to commodity price fluctuations, a productivity (TFP) shock for each sector and a commodity price shock. Both TFP and commodity price shocks are composed of unanticipated and anticipated components.FindingsThe authors show that news shocks to commodity prices lead to higher output, investment and consumption, and a countercyclical movement in the trade-balance-to-output ratio. The authors also show that commodity price news shocks explain about 24% of output aggregate fluctuations in the small open economy.Practical implicationsGiven the importance of both anticipated and unanticipated commodity price shocks, policymakers should pay attention to developments in commodity markets when designing policies to attenuate the business cycles. Future research should investigate the design of optimal fiscal and monetary policies in SOE subject to news shocks in commodity prices.Originality/valueThis paper contributes to the knowledge of the sources of fluctuations in emerging economies highlighting the importance of a new source: news shocks in commodity prices.

Corporate commodity exposure: A multi-country longitudinal study

This paper conducts a large-scale multi-country longitudinal study and examines the extent that firms are exposed to commodity price risk in 23 OECD countries. An industry analysis reveals that all industries are significantly exposed to commodity price movements ranging between 8 and 10% except for the energy sector where 38% of firms being significantly exposed. Investigating the determinants of commodity price exposure, we report that firm size is negatively associated with commodity exposure, while the fraction of R&D expenses, leverage, country GDP, and sophistication of the financial derivatives markets are positively related to commodity price exposure.

Spatial Market Integration, Price Transmission and Transaction Costs in Major Onion Markets of India

The price information is one of the prime objectives of marketing strategies, and the farmers are unable to determine the marketing strategies without knowing the price movements of the agricultural commodities. In this context, the study has examined the spatial price integration among four major onion markets using the threshold vector error correction model (TVECM) that takes into account transaction costs in the price adjustment process. Augmented Dickey–Fuller and Phillips–Perron tests for unit root suggest that the time series is I(1). The application of the Johansen cointegration technique supports the presence of long-run price association and equilibrium in all pairs of onion markets. The Granger Causality test unveils that Bengaluru Granger causes all the markets except Kolkata. The Hansen and Seo supreme Lagrange Multiplier ( SupLM) test of linearity suggests that non-linear TVECM with one threshold and two regimes is best fit for the underlying data for three pairs of markets. While the rest of the three pairs, the SupLM test rejects the null of linearity, therefore, linear vector error correction model (VECM) is estimated. Finally, VECM and TVECM results reveal that Mumbai and Bengaluru are dominant markets in price formation in rest of the markets. Against these findings, it is suggested that the prices should be stabilised in the dominant markets so that the price shocks are not transferred to other markets. The threshold parameter, which is analogous to transaction cost, reveals the high transaction costs between the selected markets pairs, especially Mumbai and Delhi. One of the reasons for the high transaction costs may be the inefficiencies in infrastructure and communication. While a more correct explanation for this difference can be attributed to the differences in marketing fees, taxes, commission charges, license fees, etc., across the spatially separated agricultural markets. JEL Codes: Q1, Q13, D4, C22, D23

Commodity risk hedging of a power producer: Case study of the Czech power market

Every power producer is facing the risk of an adverse price movement of commodities used for the power production and power itself in the meantime between cash flow planning and the actual power production. This study analyzes process of hedging the commodity market risk with usage of derivatives with financial settlement as an alternative to physical ones. For this purpose a hypothetical power producer operating a gas power unit was selected. Based on the real Czech power market data of 2019 this paper simulates expected cash flow, assesses potential risk for the producer and compares real cash flow of an unhedged position with a position hedged via futures contracts and spread options with financial settlement. For the risk evaluation Monte Carlo simulation and value at risk methods are used. As the most effective way to hedge the market risk of 2019 proved itself the futures hedge with monthly hedging tenor with an alternative in a short call option position. Practical implications: The study is written in a practical approach to the market risk man- agement process so that could be applicable in any company active in the power market facing the risk of commodity price movements regardless the input commodity used for the electric- ity production. Using the data of the Czech power market of 2019 the paper presents the case of a real power market participant.

Tail risk transmission from commodity prices to sovereign risk of emerging economies

The aim of this paper is to examine the impact of large fluctuations in global commodity prices on the dynamics of sovereign risk for 18 emerging economies using a conditional quantile dependence approach and weekly data covering the period March 27, 2009–April 25, 2022. The results show the following: commodity prices and sovereign risk move in opposite directions. The impact of global commodity prices on sovereign risk differ across countries. Commodity price fluctuations have asymmetric effects on sovereign risk; for some emerging countries, large upward commodity price fluctuations reduce sovereign risk, whereas large downward commodity price movements have a limited impact. These results have potential implications for investors and policy makers regarding sovereign risk management decisions and the cost of funding of investment projects.

FORMATION OF COMPOSITE GLOBAL COMMODITY PRICES AS AN INFLATION INDICATOR FOR EAST JAVA

With the average contribution of imports to Gross Regional Domestic Product (GRDP) in the last five years reaching 19.1%, the dynamics of global commodity prices also influence the economic performance of East Java, including the movement of inflation. A composite indicator of global commodity prices is needed to find out the impact of changes in various global commodity prices on inflation in East Java. By adopting the Bank Indonesia methodology in forming a composite global price known as the Imported Inflation Price Index (IHIM) which has considered the method of forming a global composite price created by the IMF (IMF Commodity Price Index), the compilation of East Java global price composites also examines the accuracy of commodity selection and aspects of data availability. The selected global price composite for East Java is a composite of seven global commodities which include food (wheat, soybeans, corn and CPO) and non-food (iron, gold and oil). These are two aspects determining the relative weight, namely (I) the import portion of the total input based on the Input-Output table and (ii) the commodity weight of derivatives in the East Java Consumer Price Index (IHK) basket. Furthermore, with OLS regression, the composite of East Java global commodity prices affects the core-traded inflation movement in East Java. Thus, the composite of global commodity prices in East Java can be used as an indicator of East Java inflation projections, especially core-traded inflation. This study, in general, will also examine the effect of the exchange rate impact on the movement of core inflation, especially traded groups in East Java. Based on the regression results it is known that the impact of the exchange rate movement on core traded inflation in East Java is more significant than the effect of world commodity price movements.

The Effects of COVID-19 Pandemic on the Government Revenue in the Extractive Industry in Tanzania

Tanzania has not been unique amid the COVID-19 pandemic in terms of economic impact. Since the first case was announced in March 2020, several thousand cases have been confirmed with several hundred deaths (real-time data). There were a number of transmitting factors and effects that exposed Tanzanian national revenue systems to great economic risk if COVID-19 was not well managed. The paper assesses the level of risks on the total government revenue resource systems, government revenue collections from the extractive industries and national expenditure budget performances. This descriptive paper uses results from the HakiRasilimali field research survey, 2020. The paper found high and increasing levels of negative and perceived risks on the government revenue mobilization, collection and utilization due to the existence of the COVID-19 pandemic. The majority perceived that the COVID-19 pandemic has high levels of risks and negative effects on the national budget expenditure frameworks in medium- and long-term periods. In the short run it is not easy to cut down and stop major recurrent government expenditures in developing economies. The public expenditure resources allocated to the Ministry of Minerals have been increasing during the COVID-19 pandemic to support the on-going mining reforms in Tanzania. Also, the government was compelled to allocate more financial resources to the health sector in order to fight against the COVID-19 pandemic and the aftermath, as well as support other most affected sectors. The paper recommends that the best way of preventing and combating the COVID-19 risks and related public health threats or possibilities is to protect and give capacity to socio-economic entities, sectors and actors’ abilities in achieving their desired short-, medium- and long-term objectives. To support a robust health and economic policy response, Tanzania has in its potential fiscal space relative to other East African countries, stable political environment, high international reserves, larger domestic market and favorable mineral commodity price movements. Tanzania has enhanced political preparedness and containment capacity through measures to strengthen detection, surveillance and combating the current COVID-19 pandemic.

Endogenous corporate leverage response to a safer macro environment: The case of foreign exchange reserve accumulation

A country may adopt policy measures such as raising its foreign exchange reserves to better prepare for sudden reversal of international capital flows or currency attacks, which in principle should reduce financial vulnerability for its firms and the entire economy, but the beneficial effect of such policies may be partially offset by endogenous firms' decisions to take on more risks. We present a robust but previously undocumented relationship between corporate leverage and country-level foreign exchange reserve holdings. For 6610 non-financial firms in 23 emerging markets from 2000 to 2006, we show that more foreign reserve accumulation leads to higher corporate leverage. The effect is significantly greater in sectors that are intrinsically more sensitive to uncertainty. We go from correlation to causality via a two-prong instrumental variable strategy: simultaneously (1) instrumenting FX reserves by global commodity price movement, and (2) examining leverage of firms outside the commodity-sensitive sectors.

Commodities and monetary policy: Implications for inflation and price level targeting

We examine the relative ability of inflation targeting and price level targeting monetary policy rules to minimize inflation variability and business cycle fluctuations in a commodity-exporting country for supply and demand shocks to global commodity markets. The macroeconomic consequences of oil and non-oil primary commodities differ and affect the relative merits of the alternative monetary policy frameworks. Particularly, the consumption of refined oil products and demand-driven commodity price movements induce highly persistent inflation pressures resulting in a significant deterioration of the inflation-output gap trade-off available to central banks. When such terms-of-trade shocks are prevalent, price level targeting is inferior to inflation targeting.

Commodity prices and banking crises

Commodity prices are one of the most important drivers of output fluctuations in developing countries. We show that a major channel through which commodity price movements can affect the real economy is through their effect on banks' balance sheets and financial stability. Our analysis finds that the volatility of commodity prices is a significant predictor of banking crises in a sample of 60 low-income countries (LICs). In contrast to recent findings for advanced and emerging economies, credit booms and capital inflows do not play a significant role in predicting banking crises, consistent with a lack of de facto financial liberalization in LICs. We corroborate our main findings with historical data for 40 ‘peripheral’ economies between 1848 and 1938. The effect of commodity price volatility on banking crises is concentrated in LICs with a fixed exchange rate regime and a high share of primary goods in production. We also find that commodity price volatility is likely to trigger financial instability through a reduction in government revenues and a shortening of sovereign debt maturity, which are likely to weaken banks' balance sheets.

Supply and demand indices and their welfare implications

Abstract Despite wide availability of publicly reported price and quantity movements of agricultural commodities, these data alone do not easily allow one to determine whether and to what extent changing market conditions are due to shifts in underlying supply and demand curves. Such information, however, is needed to determine contemporaneous changes in consumer and producer well-being. To address these issues, this paper derives supply and demand indices, links the indices to structural parameters in equilibrium displacement models, and shows how the measures can be used to calculate welfare changes over time. Empirical applications are presented for the US cattle, hog, and chicken sectors and for county-level corn supply. We show that supply and demand improvements have led to significant gains in beef producer and consumer welfare over time. Hog, and especially chicken, supply indices have increased markedly over the past four decades, reflecting significant productivity gains, whereas growth in cattle supply index has stagnated in recent years. We test the validity of the supply and demand indices for livestock, and find they correlate in hypothesized directions with factors such as corn prices, drought, aggregate agricultural total factor productivity, gross national product, and exchange rates. Trends in disaggregate corn supply indices reveal marked heterogeneity across US counties with the largest gains since 1980 being observed in the Dakotas, Kansas, Missouri, and the Mississippi Delta. Many areas of Ohio and Indiana have experienced negative corn supply shocks in 2016–8 relative to 2000. The approaches illustrated in this paper potentially have wide application in the study of many agricultural markets. For example, the supply index is an easy to calculate commodity- and geography-specific alternative to commonly used aggregate total factor productivity measures. The demand, supply, and welfare indices can provide timely information about the economic fundamentals in a market that can be coupled with other data to analyze structural adjustment patterns and rapidly determine changes in the well-being of producers and consumers.

The Sources of Fiscal Fluctuations

This paper assesses the dynamic impact of global macroeconomic conditions, commodity price movements, shifts in portfolio preferences, and domestic shocks on fiscal outcomes—notably the budget deficit, its main components, and debt—across a wide range of countries. Heterogeneity is investigated across the level of development and other structural characteristics. Dynamics are explored via panel local projections, while robustness is assessed via dynamic panel and system GMM regressions. World growth, financial risk appetite, political events, and commodity export prices are key determinants of fiscal outcomes in EM, while domestic growth, commodity import prices, and banking crises appear to matter more in AE. Our estimates help quantify the amount of fiscal risk generated by various factors, and thus provide inputs for the design of potential insurance mechanisms or state-contingent debt instruments that could assist in smoothing fiscal fluctuations.

Financial Performance Measurement of a Commercial Bank: A Case of Bank of China Hongkong

This study focuses on measuring the financial performance of Bank of China's profitability, solvency, and liquidity using secondary data for the period from 2008 to 2017. Various techniques such as horizontal, vertical, and ratio analysis are employed to measure financial performance. Statistical tools such as mean, standard deviation, and co-efficiency of variation measure financial data to emphasize the comparative and relative importance of presentation. The study reveals that BOC's horizontal and vertical analysis indicates a variable growth rate of percentage and amount of HK$ due to external and internal operating environmental factors. Ratio analysis reveals that the BOC was conducted in a rational and normal way except 2008, 2012, 2013, and 2015 due to the Lehman brothers' mini-bond issue, Global financial crisis, Backdrop of shrinking international trade, extreme movements in commodity prices (oil prices) and frequent swings in financial markets. Based on the findings, BOC formulates the policies to overcome the factors that would help the investors identify the banking sector's nature and assist in making their investment.

Preface to the Volume 4 Issue 4 of Indian Pacific Journal of Accounting and Finance

Preface to the Volume 4 Issue 4 of Indian Pacific Journal of Accounting and Finance