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Global Liquidity and Commodity Prices

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  • Hyunju Kang
  • Bok-Keun Yu
  • Jongmin Yu

Abstract

While monetary easing in major economies and the greater participation of financial institutions in commodity trading have enhanced the financialization of commodity markets since the global financial crisis, this paper empirically investigates whether the impact of global liquidity on commodity prices has grown since the crisis. For the agricultural products, energy and metals sectors, this paper uses a structural vector autoregression model of commodity supply, demand and prices with global liquidity to address the short-run relationship between global liquidity and commodity prices. The key finding is that the effect of global liquidity has been more pronounced for energy and metals commodity prices since the global financial crisis. This paper also suggests a price-based liquidity measure has a greater explanatory power for the commodity price dynamics than commonly-used monetary aggregates in the post-crisis period.
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  • Hyunju Kang & Bok-Keun Yu & Jongmin Yu, 2016. "Global Liquidity and Commodity Prices," Review of International Economics, Wiley Blackwell, vol. 24(1), pages 20-36, February.
    • Handle: RePEc:bla:reviec:v:24:y:2016:i:1:p:20-36
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    File URL: http://hdl.handle.net/10.1111/roie.12204
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    4. Rodrigo da Silva Souza & Leonardo Bornacki Mattos, 2022. "Oil price shocks and global liquidity: macroeconomic effects on the Brazilian real," International Economics and Economic Policy, Springer, vol. 19(4), pages 761-781, October.
    5. Young Sik Kim & Ohik Kwon, 2019. "Central Bank Digital Currency and Financial Stability," Working Papers 2019-6, Economic Research Institute, Bank of Korea.
    6. Doojav, Gan-Ochir & Luvsannyam, Davaajargal & Enkh-Amgalan, Elbegjargal, 2023. "Effects of global liquidity and commodity market shocks in a commodity-exporting developing economy," Journal of Commodity Markets, Elsevier, vol. 30(C).
    7. Ding, Qian & Huang, Jianbai & Zhang, Hongwei, 2021. "The time-varying effects of financial and geopolitical uncertainties on commodity market dynamics: A TVP-SVAR-SV analysis," Resources Policy, Elsevier, vol. 72(C).
    8. Sung Ho Park, 2018. "Fixed-Rate Loans and the Effectiveness of Monetary Policy," Working Papers 2018-20, Economic Research Institute, Bank of Korea.
    9. Zhang, Tianding & Du, Tianwen & Li, Jie, 2020. "The impact of China's macroeconomic determinants on commodity prices," Finance Research Letters, Elsevier, vol. 36(C).
    10. Lyu, Yongjian & Yi, Heling & Cao, Jin & Yang, Mo, 2022. "Time-varying monetary policy shocks and the dynamics of Chinese commodity prices," Pacific-Basin Finance Journal, Elsevier, vol. 75(C).
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    12. Yao Axel Ehouman, 2020. "Do oil-market shocks drive global liquidity?," EconomiX Working Papers 2020-33, University of Paris Nanterre, EconomiX.
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    More about this item

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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