Drift in the relative price of primary commodities: a case where we care about unit roots

Abstract

The evidence for the Prebisch-Singer hypothesis, of a downward drift over time in the relative price of primary commodities, is considered. The apparent strength of that evidence appears to depend, to a substantial degree, on whether the time series of relative prices is assumed to be trend stationary or integrated of order one. Moreover, the usual econometric tests are relatively uninformative on this question. These conclusions emerge whether or not a structural break in the series is permitted.