Impacts of Chinese demand and long term American interest rate on the dynamics of commodity prices

Abstract

This paper is concerned with the empirical testing of the hypothesis that a new regime of high commodity prices in the early 2000s was driven by demand from emerging countries, particularly China, and by monetary and financial factors related to commodity markets. Based on a Vector Error Correction Model (VECM), our estimation results support this hypothesis. In addition to this main result, given that the exploitation of commodities is the main source of revenue to finance their development strategies, the possible maintenance of high commodity price indexes would be an opportunity to change the development path of countries specialized in the production of goods from the primary economic sector.