Primary commodities still account for the bulk of exports in many developing countries. However, real commodity prices have been declining almost continuously since the early 1980s. The appropriate policy response to a terms of trade shock depends importantly on whether the shock is perceived to...

The "traditional structural approach" to determining real commodity prices has relied exclusively on demand factors as the fundamentals that explain the behavior of commodity prices. This framework, however, has been unable to explain the marked and sustained weakness in these prices during the...