Title
A model of commodity prices after Sir Arthur Lewis
Author(s)
Angus Deaton Angus Deaton (Princeton University)
Guy Laroque Guy Laroque (INSEE, Paris)
Abstract
We develop an idea from Arthur Lewis' paper on unlimited supplies of labor to model the long run behavior of the prices of primary commodity produced by poor countries. Commodity supply is assumed infinitely elastic in the long run, and the rate of growth of supply responds to the excess of the current price over the long run supply price. Demand is linked to the level of world income and to the price of the commodity, so that price is stationary around its supply price, and commodity supply and world income are cointegrated. The model is fitted to long-run historical data.
Creation Date
2002-06
Section URL ID
RPDS
Paper Number
Deaton_Laroque_A_model_of_commodity_prices_JDE.pdf
URL
https://rpds.princeton.edu/sites/rpds/files/media/deaton_laroque_a_model_of_commodity_prices_jde.pdf
File Function
Jel
E3, F1, O1
Keyword(s)
Commodity prices, Sir Arthur Lewis, World income, Cointegration
Suppress
false
Series
5