Trends and cycles in commodity markets

Abstract

The presence of trends and cycles in commodities is examined for the updated Grilli and Yang database from 1900 to 2010. We employ the Hamilton filter to obtain the trend and cycle for each commodity and the commodity indexes. The Prebisch-Singer Hypothesis, of a downward trend of the commodities, holds for the most period of our sample and for the majority of the data. The corresponding cycles from the Hamilton filter, have a shorter duration than the Super Cycles and have at least one additional cycle wave. The present analysis focuses also on the relationship among commodity prices, different levels of economic activity and interest rate. The empirical results provide evidence that commodity prices Granger-cause interest rate and mainly the Chile GDP, while interest rate Granger causes commodity prices and the economic activity of the US. Finally, there is a causality running from the economic activity of the world towards the commodity prices.