Advertisement

IMF Staff Papers

, Volume 55, Issue 4, pp 541–565 | Cite as

Super Cycles in Real Metals Prices?

  • John T Cuddington
  • Daniel Jerrett
Article

Abstract

To borrow a phrase once used about business cycles, it can be said that “the study of super cycles necessarily begins with the measurement of super cycles” (adapted from Baxter and King, 1999). Are metal prices currently in the early phase of such a “super cycle”? Many market observers believe the answer is yes. Academics, on the other hand, are generally skeptical about the presence of long cycles. This paper searches for evidence of super cycles in metal prices by using band-pass filters to extract particular cyclical components from time series data. The evidence is consistent with the hypothesis that there have been three super cycles in the past 150 years or so, and that we are currently in the early phase of a fourth super cycle. Most analysts attribute the latter primarily to Chinese urbanization and industrialization.

JEL Classifications

E3 Q0 

References

  1. Adelman, I., 1965, “Long Cycles: Fact or Artifact?” The American Economic Review, Vol. 55, No. 3, pp. 444–463.Google Scholar
  2. Armstrong, C., O. Chaundry, and S. Streifel, 2006, “The Outlook for Metals Markets,” paper presented at the G-20 Deputies Meeting, Sydney, Australia.Google Scholar
  3. Baxter, M., and R.G. King, 1999, “Measuring Business Cycles: Approximate Band-Pass Filters for Economic Time Series,” The Review of Economics and Statistics, Vol. 81, No. 4, pp. 575–593.CrossRefGoogle Scholar
  4. Blanchard, O., 1997, “The Medium Run,” Brookings Papers on Economic Activity, No. 2, pp. 89–158.Google Scholar
  5. Cashin, P., and J. McDermott, 2002, “The Long-Run Behavior of Commodity Prices: Small Trends and Big Variability,” IMF Staff Papers, Vol. 49, No. 2, pp. 1–26.Google Scholar
  6. Christiano, L., and T. Fitzgerald, 2003, “The Band Pass Filter,” International Economic Review, Vol. 44, No. 2, pp. 435–465.CrossRefGoogle Scholar
  7. Cogley, T., and J.M. Nason, 1995, “Effects of the Hodrick-Prescott Filter on Trend and Difference Stationary Time Series Implications for Business Cycle Research,” Journal of Economic Dynamics and Control, Vol. 19, No. 1–2, pp. 253–278.CrossRefGoogle Scholar
  8. Comin, D., and M. Gertler, 2006, “Medium-Term Business Cycles,” The American Economic Review, Vol. 96, No. 3, pp. 523–551.CrossRefGoogle Scholar
  9. Cuddington, J.T., and C.M. Urzúa, 1989, “Trends and Cycles in the Net Barter Terms of Trade: A New Approach,” The Economic Journal, Vol. 99, No. 396, pp. 426–442.CrossRefGoogle Scholar
  10. Cuddington, J.T., R. Ludema, and S.A. Jayasuriya, 2007, “Prebisch-Singer Redux,” in Natural Resources: Neither Curse not Destiny, ed. by D. Lederman and W.F. Maloney (Stanford, California, Stanford University Press).Google Scholar
  11. Davis, G., and M. Samis, 2006, “Using Real Options to Manage and Value Exploration,” Society of Economic Geologists Special Publication, Vol. 12, No. 14, pp. 273–294.Google Scholar
  12. Deaton, A., and R. Miller, 1995, “International Commodity Prices, Macroeconomic Performance, and Politics in Sub-Saharan Africa,” Princeton Essays in International Finance, No. 79.Google Scholar
  13. Evans, G.W., S. Honkapohja, and P. Romer, 1998, “Growth Cycles,” The American Economic Review, Vol. 88, No. 3, pp. 495–515.Google Scholar
  14. Gilbert, C.L., 2007, “Metals Price Cycles,” paper presented at the Minerals Economics and Management Society, Golden, Colorado, April 17.Google Scholar
  15. Gorton, G., and K.G. Rouwenhorst, 2004, “Facts and Fantasies about Commodity Futures,” Financial Analyst Journal, Vol. 62, No. 2, pp. 47–68.CrossRefGoogle Scholar
  16. Heap, A., 2005, China—The Engine of a Commodities Super Cycle (New York, Citigroup Smith Barney).Google Scholar
  17. Heap, A., 2007, “The Commodities Super Cycle & Implications for Long Term Prices,” paper presented at the 16th Annual Mineral Economics and Management Society, Golden, Colorado, April.Google Scholar
  18. Howrey, E.P., 1968, “A Spectrum Analysis of the Long-Swing Hypothesis,” International Economic Review, Vol. 9, No. 2, pp. 228–252.CrossRefGoogle Scholar
  19. Jerrett, D., and J.T. Cuddington, 2008, “Broadening the Statistical Search for Metal Price Super Cycles to Steel and Related Metals,” Resources Policy, Vol. 33, No. 4 (forthcoming).Google Scholar
  20. Labys, W.C., A. Achouch, and M. Terraza, 1999, “Metal Prices and the Business Cycle,” Resources Policy, Vol. 25, No. 4, pp. 229–238.CrossRefGoogle Scholar
  21. London Metal Exchange, 2008, “Non-Ferrous Metals,” London Metal Exchange (March 10). Available on the Internet: lme.com/non-ferrous.asp.
  22. Maxwell, P., 1999, “The Coming Nickel Shakeout,” Minerals and Energy, Vol. 14, pp. 4–14.CrossRefGoogle Scholar
  23. McDermott, J.C., P.A. Cashin, and A. Scott, 1999, “The Myth of Co-Moving Commodity Prices,” Bank of New Zealand Discussion Paper G99/9, Wellington, New Zealand.Google Scholar
  24. Morgan Stanley, 2006, Global Commodities Review (New York, Morgan Stanley).Google Scholar
  25. Nelson, C.R., and H. Kang, 1981, “Spurious Periodicity in Inappropriately Detrended Time Series,” Econometrica, Vol. 49, No. 3, pp. 741–751.CrossRefGoogle Scholar
  26. Pindyck, R.S., and J.J. Rotemberg, 1990, “The Excess Co-Movement of Commodity Prices,” The Economic Journal, Vol. 100, pp. 1173–1189.CrossRefGoogle Scholar
  27. Radetzki, M., 2006, “The Anatomy of Three Commodity Booms,” Resources Policy, Vol. 31, No. 1, pp. 56–64.CrossRefGoogle Scholar
  28. Radetzki, M., 2008, A Handbook of Primary Commodities in the Global Economy (Cambridge, Cambridge University Press).CrossRefGoogle Scholar
  29. Rogers, J., 2004, Hot Commodities: How Anyone Can Invest and Profitably in the World's Best Market (New York, Random House).Google Scholar
  30. Sillitoe, R.H., 1995, “Exploration and Discovery of Base- and Precious-Metal Deposits in the Circum-Pacific Region During the Last 25 Years,” Resource Geology Special Issue, Vol. 19, p. 119.Google Scholar
  31. Solow, R., 2000, “Toward a Macroeconomics of the Medium Run,” Journal of Economic Perspectives, Vol. 14, No. 1, pp. 151–158.CrossRefGoogle Scholar
  32. Tilton, J.E., 2006, “Outlook for Copper Prices—Up or Down?,” Paper presented at the Commodities Research Unit World Copper Conference. Santiago, Chile, April.Google Scholar
  33. Tilton, J.E., and G. Lagos, 2007, “Assessing The Long-Run Availability of Copper,” Resources Policy, Vol. 32, No. 1–2, pp. 19–23.CrossRefGoogle Scholar

Copyright information

© International Monetary Fund 2008

Authors and Affiliations

  • John T Cuddington
  • Daniel Jerrett

There are no affiliations available

Personalised recommendations