Commodity Prices in Argentina: What Moves the Wind?

Abstract

The increase in international prices of commodities exported by Argentina is usually presented as a tailwind that explains both the strong performance in terms of growth and the good global conditions that have benefited the country from 2003 to mid-2008. This paper investigates which are the determinants of the prices of Argentina's eight main export commodities through a vector error correction model. Our estimates indicate that the US multilateral real exchange rate, the US real interest rate, international liquidity, and demand for raw materials, proxied by global industrial production, are important fundamentals of commodity prices in the long term. The most important conclusion is that the factors that affect commodity prices are very similar to those that influence capital flows. This helps to understand why we observe a positive correlation between trade and financial shocks in emerging countries in general and, particularly, in Argentina.

JEL classification: C32 ; F42 ; Q11