Commodity Modeling and Pricing: Methods for Analyzing Resource Market Behavior

CHAPTER 2

Procyclicality of Primary Commodity Prices A Stylized Fact?

A. Behrooz Afrasiabi

INTRODUCTION

Since the pioneering work by Burns and Mitchell (1946), numerous economic time series have been analyzed for their cyclical characteristics using the methodologies employed in that study. The collection of these studies has created a body of facts that underlie much of today’s business cycle theory. With the advent of newer methodologies and theoretical perspectives, reliance on these stylized facts still provides a starting point for business cycle research. As stated by Blackburn and Ravn (1992), these new methodologies place two basic demands on business cycle research: “The complete and systematic characterization of the cyclical phenomena in the form of stylized facts, and the construction of fully articulated model economies which can be evaluated both quantitatively and qualitatively in terms of their ability to replicate these facts.”

Research on stylized facts is an important and integral part of business cycle research. After Lucas (1977), research has mostly focused on sample moments. Among these, probably the most important are the sample comovements of the output with other time series. For example, a rich and at times controversial literature on real wages attempts to establish the positive comovements of real wages with output as a stylized fact (Abraham and Haltiwanger 1995). The relative efficacy of competing business cycle theories is then judged by their ...