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Monetary policy shocks and the dynamics of agricultural commodity prices: evidence from structural and factor†augmented VAR analyses

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  • Md Rafayet Alam
  • Scott Gilbert

Abstract

Fluctuation in commodity prices is a significant and timely issue to be studied. This study is to examine the impact of monetary policy and other macroeconomic shocks on the dynamics of agricultural commodity prices. The major contributions of this study are twofold. First, unlike other studies that use indexes, this study analyzes the commodities individually, affording the inclusion of commodity†specific fundamentals such as the level of inventory—an important determinant of commodity price—in a structural VAR framework. Second, it exploits a rich data set of agricultural commodity prices which includes commodities that are usually overlooked in the literature, and extracts a common factor using the dynamic factor model to understand the extent of comovement of the prices and to gauge the extent to which macroeconomic shocks drive the “comovement†in a factor†augmented VAR (FAVAR) framework. The findings show that monetary policy, global economic conditions, and the U.S. dollar exchange rates play an important role in the dynamics of agricultural commodity prices.

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  • Md Rafayet Alam & Scott Gilbert, 2017. "Monetary policy shocks and the dynamics of agricultural commodity prices: evidence from structural and factor†augmented VAR analyses," Agricultural Economics, International Association of Agricultural Economists, vol. 48(1), pages 15-27, January.
    • Handle: RePEc:bla:agecon:v:48:y:2017:i:1:p:15-27
    DOI: 10.1111/agec.12291
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    8. Kakade, Kshitij Abhay & Mishra, Aswini Kumar, 2021. "The impact of macroeconomic and oil shocks on India’s non-ferrous metal prices: A structural-VAR approach," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 63, pages 30-50.
    9. Krzysztof Drachal, 2019. "Analysis of Agricultural Commodities Prices with New Bayesian Model Combination Schemes," Sustainability, MDPI, vol. 11(19), pages 1-23, September.
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    11. Arash Ketabforoush Badri, 2022. "The Monetary Policy Shocks and the Price of Selected Oil Commodity Groups in Iran," Noble International Journal of Economics and Financial Research, Noble Academic Publsiher, vol. 7(3), pages 51-59, September.

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