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Volatility of commodity futures prices and market-implied inflation expectations

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  • Orlowski, Lucjan T.

Abstract

This study examines intricate interplay between crude oil, copper and gold futures prices, and market-implied inflation expectations that are proxied by the breakeven inflation derived from the 5-year US Treasury Note yields. We perform the Bai-Perron multiple breakpoint tests, Bayesian VAR with impulse response functions and GARCH with GED parameterization tests on daily data for the sample period January 3, 2003 – March 26, 2015. The results show a strong causal impact of shocks in the breakeven inflation on West Texas Intermediate and Brent crude oil as well as copper futures prices, albeit to varied degrees during the examined sample period. At times of low market risk and highly liquid markets West Texas Intermediate and copper futures prices move in tandem with the 5-year breakeven inflation. Prices of Brent and gold futures move in the opposite direction to the market-implied inflation.

Suggested Citation

  • Orlowski, Lucjan T., 2017. "Volatility of commodity futures prices and market-implied inflation expectations," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 51(C), pages 133-141.
    • Handle: RePEc:eee:intfin:v:51:y:2017:i:c:p:133-141
    DOI: 10.1016/j.intfin.2017.10.002
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    More about this item

    Keywords

    Commodity futures prices; Breakeven inflation; Bayesian VAR; Bai-Perron multiple breakpoint regression; GARCH;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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