Showing posts from August, 2014

Commodity Prices: Financialization or Supply and Demand?

I've often panned the idea that commodity prices have been greatly influenced by so-called financialization---the emergence of tradable commodity price indices and growing participation by Wall Street in commodity futures trading. No, Goldman Sachs did not cause the food and oil-price spikes in recent years. I've had good company in this view.   See, for example, Killian , K nittel and Pindyck , Krugman  (also here ),  Hamilton , Irwin and coauthers , and I expect many others. I don't deny that Wall Street has gotten deeper into the commodity game, a trend that many connect to  Gorton and Rouwenhorst (and much  earlier similar findings ).  But my sense is that commodity prices derive from more-or-less fundamental factors--supply and demand--and fairly reasonable expectations about future supply and demand.  Bubbles can happen in commodities, but mainly when there is poor information about supply, demand, trade and inventories.  Consider rice, circa 2008 . But most a