150 Years of Boom and Bust. What Drives Mineral Commodity Prices?

This paper examines the dynamic effects of demand and supply shocks on mineral commodity prices. It provides empirical insights by using annual data for the copper, lead, crude oil, tin and zinc markets from 1840 to 2010. Long-term price fluctuations are mainly driven by persistent aggregate and market-specific demand shocks. Supply shocks exhibit importance in the tin and copper markets due to oligopolistic structures. Results for the price of crude oil are not robust to different sub-periods due to structural changes. At the same time, aggregate demand shocks have persistent and strong positive effects on mineral production. This suggests that rapid industrialization in China and other emerging economies may cause prices to return to their declining or stable trends in the long run.