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Commodity prices and inflation: Testing in the frequency domain

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  • Ciner, Cetin
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    Abstract

    We provide evidence for a long term, positive relation between commodity prices and inflation. However, this is only detected when frequency dependency in the regression is statistically accounted for, suggesting nonlinear dynamics between the variables. We also test whether commodity prices can be used to forecast inflation. Again relying on frequency domain methods, we indeed find support for long term causality from commodities to inflation. Moreover, the information content of commodity futures prices is robust to the effects of several financial and economic variables.

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    Bibliographic Info

    Article provided by Elsevier in its journal Research in International Business and Finance.

    Volume (Year): 25 (2011)
    Issue (Month): 3 (September)
    Pages: 229-237

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    Handle: RePEc:eee:riibaf:v:25:y:2011:i:3:p:229-237

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    Keywords: Commodities Inflation Frequency domain;

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    1. Jeffrey A. Frankel, 2006. "The Effect of Monetary Policy on Real Commodity Prices," NBER Working Papers 12713, National Bureau of Economic Research, Inc.
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    13. S. Brock Blomberg & Ethan S. Harris, 1995. "The commodity-consumer price connection: fact or fable?," Economic Policy Review, Federal Reserve Bank of New York, issue Oct, pages 21-38.
    14. Richard Ashley & Randal Verbrugge, 2009. "Frequency Dependence in Regression Model Coefficients: An Alternative Approach for Modeling Nonlinear Dynamic Relationships in Time Series," Econometric Reviews, Taylor & Francis Journals, vol. 28(1-3), pages 4-20.
    15. Stephen G Cecchetti & Richhild Moessner, 2008. "Commodity prices and inflation dynamics," BIS Quarterly Review, Bank for International Settlements, December.
    16. Bhar, Ramaprasad & Hamori, Shigeyuki, 2008. "Information content of commodity futures prices for monetary policy," Economic Modelling, Elsevier, vol. 25(2), pages 274-283, March.
    17. Cody, Brian J & Mills, Leonard O, 1991. "The Role of Commodity Prices in Formulating Monetary Policy," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 358-65, May.
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    Cited by:
    1. Ciner, Cetin, 2011. "Information transmission across currency futures markets: Evidence from frequency domain tests," International Review of Financial Analysis, Elsevier, vol. 20(3), pages 134-139, June.
    2. Bozoklu, Seref & Yilanci, Veli, 2013. "Energy consumption and economic growth for selected OECD countries: Further evidence from the Granger causality test in the frequency domain," Energy Policy, Elsevier, vol. 63(C), pages 877-881.

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