Rises and Falls in Primary Commodity Prices: Blame it on ENSO or Leave Them Kids Alone?
Monday, 26 January, 2015

On January 22, Dr. David Ubilava, from the University of Sydney, led a seminar on the subject of his recent paper, "Rises and Falls in Primary Commodity Prices: Blame it on ENSO or Leave Them, Kids, Alone?"

The speaker began by introducing the essence of his research, which aims to estimate the effects of ENSO on commodity prices. ENSO is an abbreviation of El Niño Southern Oscillation, which refers to the effects of a band of sea surface temperatures that are anomalously warm or cold for long periods of time.

This process has a cyclical character and a strong effect on the production and distribution of different commodities. If ENSO-related weather disturbances are synchronized across commodity producer countries, the causal relationship between ENSO and commodity price movement becomes an economic corollary; however, this causality is not always there. The strength of the linkage depends on the concentration of the primary commodities in the ENSO-affected regions, the availability of close substitutes, and the ability of producers to adapt to climate shocks in the short term.

Afterward, Dr. Ubilava spoke about his research methods. He uses linear and nonlinear time series models. The aim of using the latter method was to reveal causality, which might not be observed using only linear models and indeed it appeared that several commodity price dynamics have a nonlinear character. For other commodities, the nonlinear specification does not result in more accurate forecasts.

The speaker finished his presentation by summarizing his research results, namely that ENSO primarily affects agricultural commodity prices, but it is less of a factor for other commodity prices.

ISET would like to thank Dr. David Ubilava for sharing his interesting seminar and presentation with the ISET community!