How did the demise of international commodity agreements affect volatility of primary commodity prices?

Abstract

This article has used the T-GARCH and E-GARCH models to answer the following two questions regarding the pattern of volatility of commodity prices following the demise of international commodity agreements (hereafter ICAs) in five key commodities: firstly, the question of whether the collapse or suspension of ICAs contributed to asymmetry in price volatility and secondly, the question of whether the collapse or suspension of ICAs led to an increase in persistence in price volatility. The results show that breakdown of ICAs was generally followed by higher degree asymmetry in price volatility but lower persistence in volatility.

Acknowledgements

The author thanks one anonymous referee and Kevin Orr for valuable comments and suggestions which helped to improve this article from an earlier version. All remaining errors are the author's.

Notes

¹ The wording of the resolution is reproduced in Brown (1980), p. 274 and Corea (1992), p. 206.

² The Economist, November 2, 1985.

³ Financial Times, February 18, 1992, p. 36

⁴ The specification of the E-GARCH model above differs from the original form in Nelson (1991). Nonetheless, under the assumption of normal errors the models yield identical estimates of all parameters except for the intercept term (see Hamori, 2000).