# **ENDNOTES**

> **1** The International Energy Agency’s July 2007 outlook noted that (p. 10) “Oil and gas price pressures set to remain in the coming years.” Not that long ago, however, the energy outlook was different. In its March 6, 1999 issue, the _Economist_ ’s leader article entitled “Drowning in Oil” concluded (p. 19) that “$10 [per barrel] might actually be too optimistic. We may be heading for $5 [per barrel]. Thanks to new technology and productivity gains, you might expect the price of oil, like that of most other commodities, to fall slowly over the years. Judging by the oil market in the pre-OPEC era, a "normal" market price might now be in the $5-10 range. Factor in the current slow growth of the world economy and the normal price drops to the bottom of that range.”

> **2** A literature review on the oil price shocks and the macroeconomy can be found in Jones, Leiby, and Paik (2004). For an example of the effects of crude oil price changes to the various sectors of the Australian economy see Valadkhani and Mitchell (2002).

> **3** Ai, Chatrath, and Song (2006), who examined whether there is excess comovement in commodity prices as argued by Pindyck and Rotemberg (1990), found that agricultural commodities respond very little to macroeconomic variables, including income.

> **4** The nominal commodity price deflated by the MUV can be viewed as the terms of trade of commoditydependent developing countries since their economies are characterized by exports of primary commodities and imports of manufactured goods.

> **5** In a comparison of US and Venezuelan income growth, Campos and Ericsson (1999) showed that 16 years of annual Venezuelan data carry almost twice the information content of that in over four decades of quarterly US data (162 observations).

> **6** Most studies use either World Bank or IMF commodity prices data, which are almost identical. There are some minor differences in the weight structure of price indices. The World Bank uses weights based on exports form developing countries while the IMF uses weights based on world trade.

> **7** A trend regression of the real agricultural index (i.e., nominal divided by the MUV) gives an annual decline of about 1.8 percent, very similar to the trend estimate reported in Table 2. Although the simple trend regression produced a non-stationary residual, one may conclude that technological change induces a 1.5 to 2 percent annual decline in agricultural commodity prices, which is a common view in the literature and consistent with the so-called ‘Prebisch-Singer’ hypothesis—Prebisch (1950) and Singer (1950) argued that the net barter terms of trade between primary commodities and manufactures had been deteriorating throughout the first half of the 20<sup>th</sup> century.

> **8** The results for metals in this paper echo those of Evans and Lewis (2005) who estimated a dynamic liner metals demand function and concluded that there is no common metals demand function.

> **9** Aluminum and tin are substitutes. It is believed that the large market share of aluminum reflects the Tin Agreement’s ability to keep tin prices high thus making aluminum an inexpensive alternative.

> **10** A similar argument may be applied to coffee, cocoa, and rubber, which have also been subjected to UNbacked commodity agreements (see Gilbert 1987 for a discussion on these agreements).

> **11** Radetzki (2006) examined the anatomy of the three post-WWII commodity booms (Korean war, 1970s, and the post-2004) and concluded (p. 63): “The third boom, in contrast, perseveres in mid-2006 without any end in sight.” As of June 2007, the 2007 non-energy index was 12 percent higher than the 2006 average!

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