Understanding the drivers of commodity price booms and busts is of first-order importance for the global economy. A significant portion of income and welfare in both commodity-consuming and commodity-producing nations hinges upon these prices (Bernanke, 2006; IMF, 2012). They also vitally affect the distribution of income within particular nations as the ownership of natural resources varies widely. What is more, the long-run drivers of commodity prices also have serious implications for the formation and persistence of both growth-detracting and growth-enhancing institutions (van der Ploeg, 2011). But for all this, outside spectators—whether they are academics, the general public, the investment community, or policy-makers—remain seriously divided in assigning the importance of various forces in the determination of commodity price booms and busts.

The recent history of commodity prices is indicative of this situation. From multi-decade lows in the late 1990s, real commodity prices rose for the next 10 years, culminating in the price spike of 2008 when they stood at over three times their level in 1998 (Jacks, 2013). All along the way, observers battled it out, variously pointing to the respective roles of fundamentals versus speculation in driving real commodity prices to such heights (Irwin, 2009; Fattouh, Kilian, and Mahadeva, 2013). Recent developments in the opposite direction—with real commodity prices having shed roughly 50% of their value in the past few years—have likewise generated much heat, but not so much light.1 Yet regardless of any particular commenter’s take on the ultimate driver of commodity price booms and busts, none have doubted the question’s importance