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List of Tables=xi

List of Figures=xiii

Acknowledgments=xv

Foreword/Steve Nickell=xvi

1. Introduction=1

1.1. Modelling the links between primary commodity prices and the OECD economy=4

1.1.1. The characteristics of the model and the bloc approach=5

1.2. Primary commodity prices: a historical perspective=6

1.3. The oil market=9

1.3.1. The first oil shock=10

1.3.2. The second oil shock=12

1.3.3. The oil market in the 1980s and the third oil price shock=12

1.4. The relationship between oil and non-oil commodity prices=14

1.5. The financial markets in the aftermath of the oil shocks=15

1.6. OECD activity and primary commodity prices: a vector autoregression analysis=20

1.6.1. Multivariate Granger-causality tests=22

1.6.2. Cointegration analysis=29

1.7. Layout of the book=35

Appendix to Chapter 1: import unit value and primary commodity price index=36

2. The Outline of the Theory=38

2.1. The OECD product market=39

2.2. The functioning of the OECD labour market=40

2.3. Industrial conflicts=42

2.4. The working of the OECD supply side=44

2.5. OECD and LDC aggregate demand=46

2.6. Current account imbalances, the world capital market and the real interest rate=47

2.7. The evolution of the LDC external debt=51

2.8. The primary commodity market=52

2.9. The working of the model=55

2.9.1. The long-run solution=57

2.9.2. A comparison between the long- and the short-run=60

2.9.3. The sources of hysteresis: nominal inertia=63

2.9.4. The sources of hysteresis: short-run factors=65

3. Details of the Model=67

3.1. The OECD production function and price equation=67

3.2. The OECD labour market=71

3.2.1. The competitive model=71

3.2.2. The efficiency wage model=72

3.2.3. The insider-outsider model=73

3.3. A model of strikes=76

3.4. OECD and LDC aggregate demand=78

3.5. The financial market=79

3.6. The primary commodity market=81

4. Estimations and Simulations=87

4.1. The estimated OECD supply side=87

4.2. GECD and LDC estimated aggregate demand=91

4.3. The estimated financial market=92

4.4. The estimated primary commodity market=94

4.5. How we use the estimated model=95

4.6. The long-run equilibrium=95

4.7. The breakdown of the equilibrium paths=105

4.7.1. The economic situation in the five sub-periods=107

4.7.2. Accounting for the change of equilibrium rate of unemployment=109

4.7.3. Accounting for the change of equilibrium non-oil commodity price index=110

4.7.4. Accounting for the change of equilibrium real wage=110

4.7.5. Accounting for the change of equilibrium real interest rate=112

4.7.6. Accounting for the change of equilibrium LDC real external debt=113

4.7.7. Accounting for the change of equilibrium LDC GDP=114

4.8. The short-run: nominal inertia and the determinants of wage and price forecasting errors=115

4.9. Hysteresis of the OECD unemployment rate=117

4.10. Oil shock simulations=122

4.10.1. The role of adjustment processes and short-run factors=123

4.10.2. The role of single external markets on the OECD economy=129

4.10.3. The propagation of the oil shock to the whole system=134

4.10.4. A summary of the oil shock effects=140

Appendix to Chapter 4: the estimated model 1958-1988 3SLS=143

5. Conclusions=150

5.1. The descriptive analysis=150

5.2. The vector autoregression analysis=152

5.3. The basic features of the model=152

5.4. External markets and hysteresis of the OECD unemployment rate=153

5.5. What have we learned about the links between primary commodity prices and the OECD economic performance?=154

5.5.1. Through which channels do commodity prices feed into the North?=155

5.5.2. Through which channels does the North economy affect external markets?=155

5.5.3. What is the role of the financial market?=156

5.6. How does the system react to exogenous primary commodity price shocks?=156

5.7. The impact of the real price of oil on the low-frequency movements of the endogenous variables=157

5.8. Epilogue=159

Data Appendix: Definitions and Sources=160

Notes=164

References=173

Index=179

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