Persistence of Commodity Shocks
By John Baffes, Ph.D., Senior Agriculture Economist, Prospects Group, World Bank and Member of both the JPMCC’s Research Council and the GCARD’s Editorial Advisory Board; and Alain Kabundi, Ph.D., Senior Economist, Prospects Group, World Bank
Based on an analysis of 27 commodities during 1970-2019, this article finds that transitory and permanent shocks contributed almost equally to commodity price variations, although with wide heterogeneity. Permanent shocks accounted for two-thirds of the variability in annual agricultural commodity prices but less than half of the variability in base metals prices. For energy prices, permanent shocks have trended upward, for agricultural prices, downwards, and for metals prices, flat. The volatility triggered in April-to-October 2020 by the COVID-19 pandemic appears to constitute a series of largely transitory shocks for commodity prices.
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