Walter C. Labys

Metal prices and the business cycle

Abstract Metal price fluctuations have recently been of interest not only because of their cyclical volatility but also of their interaction with business cycles. A related issue is whether metal prices move together sufficiently to collectively reflect macroeconomic influences. Correlation or the tendency for prices to move together has been termed “comovement”, where the commonality in prices reflects the tendency of commodity markets to respond to common business cycle and trend factors. Metal prices are known to respond to macroeconomic influences and the latter might well explain the common factor which causes them to move together. Our goal is to provide an estimate of the common factor in metal prices and to relate this factor to important macroeconomic influences. The prices we study are for aluminum, copper, tin, lead and zinc; the macroeconomic variables include industrial production, consumer prices, interest rates, stock prices, and exchange rates. Our results confirm that the common factor in metal prices can be related to such macroeconomic influences.

The existence of metal price cycles

Abstract Fluctuations in metal prices have been of interest not only because of the instability they impose on the metal industries but also because of the extent to which they reflect changes in business cycle activity. Regularities in these fluctuations have often been characterized as cycles, even though any periodicity they might possess is confounded by stochastic shocks. Our purpose is to focus on short-term price movements, so as to obtain greater information concerning the forecasts needed for purchasing, making sales, trading and performing other day-to-day activities in the metals industry. The metals we study include aluminum, copper, gold, lead, nickel, silver, tin, tungsten and zinc. This study begins with standard business cycle identification procedures employed in macroeconomic research. After applying the Weibull test of cyclical duration to the discovered cycles, the structural time series method is employed to confirm further the statistical significance of the cycles, not only over the total period beginning 1960, but also over appropriate sub-periods. Finally, conclusions are drawn regarding the significance of the cyclical findings.

Application of the translog model of energy substitution to developing countries : The case of Korea

Abstract While studies exist on the applications of the translog energy model in developed countries, little is known about its application in developing countries. To this end, this paper investigates the long-run sensitivities of energy demand to price changes, and the degree of interfactor and interfuel substitution in the Korean industrial sector. We also uniquely disaggregate the industrial sector into nine manufacturing and three non-manufacturing subsectors. Based on time-series data obtained from the Korea Institute of Energy and Resources, an energy demand model has been specified and estimated according to the translog approach. The conclusions provide future directions for energy demand management policies in Korea.

A quadratic programming model of the Appalachian steam coal market

Abstract The authors report on an extension of recent modelling efforts to analyse the Appalachian steam coal market using a programming approach. The background to these modelling efforts is examined first. The particular aspects of the steam coal market to be modelled are then presented and the corresponding coal model described. Empirical results are analysed for the 1973 base solution and then compared to alternative solutions embodying variations in the parametric structure. Conclusions are drawn regarding potential policy applications.

Commodity lifecycles in US materials demand

Abstract This paper suggests that the dematerialization concept provides only a shorter-run or limited explanation of materials demand patterns. We offer instead the concept of transmaterialization, which furnishes a longer-run or more complete interpretation of materials demand patterns. Two hypotheses about materials demand behaviour are partially confirmed: (1) that a number of materials IOU patterns follow the commodity lifecycle theory; and (2) that these lifecycles occur in waves which have been observable since earlier this century.

Price Convergence on World Commodity Markets: Fact or Fiction?

This article examines the degree to which commodity prices have converged on world commodity markets over recent decades. Ideally, increases in communications, central bank activities, and globalization would suggest that commodity prices in spatially dispersed markets should become similar over time. To measure convergence, correlation, regression, cointegration, and vector autoregressive methods are employed. Comparable geographic data were assembled for six commodities: coffee, cotton, wheat, lead, copper, and tin, covering the period 1930 through 1998. Overall, the empirical results do not support the convergence hypothesis but rather a pattern of fluctuating divergences.

Trends versus cycles in global wine export shares

The global wine market has witnessed major changes in recent years. Some of these changes are structural in nature or trend-following, whereas others are cyclical. Recently, new market entrants have increased their exports not only to traditional European markets but to other importing regions as well, whereas Old World producers have experienced declining market shares. However, the evidence examined here suggests that market share data also contain strong cyclical components. Mixed results also occur when the wine export data are disaggregated into products. This paper employs econometric methods to analyse the recent major shifts in world wine market shares and explains whether these are more of a secular trend-setting nature or of a temporary cyclical nature.

Advances in the Spatial Equilibrium Modeling of Mineral and Energy Issues

Spatial equilibrium programming methods are increasingly being applied to modeling regional mineral and energy issues. Spatial equilibrium models have been developed to analyze regional commodity trade problems in a national and international context. Mineral models deal with nonfuel minerals and energy models with fuel minerals. Recent modeling efforts focus on conventional fuel and nonfuel mineral trade problems, recognizing the importance of transport costs and political constraints in formulating an equilibrium that approximates competitive trade. Other recent efforts focus on the engineering processes required to transform primary mineral ores or fuels to their more useful processed stages. This paper reviews the theoretical approaches of spatial equilibrium models, compares them to other methods, introduces new modeling advances, and provides a perspective on future modeling directions.

Commodity price fluctuations and macroeconomic adjustments in the developed economies

Abstract Commodity price fluctuations have proven troublesome in their destabilizing effects on export revenues and foreign exchange earnings in developing countries. Recently, however, attention has been drawn to their role in transmitting inflation and in inducing macroeconomic and financial adjustments in the developed countries. These adjustments range from changes in employment and output (including the business cycle) to changes in money supply, interest rates, and exchange rates. The impact of commodity price fluctuations on these and other variables has been analyzed using time-series methods including Granger-causality tests. Data and results are reported for the major OECD countries over the period 1957 to 1986: United States, United Kingdom, Japan, France, Germany, and Italy.

Measuring the validity and performance of energy models

Abstract This paper is concerned with approaches to validating and judging the performance of energy models. There has been a proliferation of models of all sorts. These models not only attempt to deal with many different aspects of industry and market behaviour but also involve widely different modelling methodologies. Several attempts have been made to classify and to evaluate these methodological approaches; they are not repeated here. Rather this paper focuses on criteria for determining the validity of a model that are quantitative and hopefully rigorous. Different validation criteria are suggested for econometric time-series models, models, and mathematical programming models. Finally, an appeal is made for including validation measures in future energy modelling studies.