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The informational role of commodity prices in formulating monetary policy: a reexamination under the frequency domain

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  • Yanfeng Wei

Abstract

This paper employs the frequency domain causality test proposed by Breitung and Candelon (J Econom 132:363–378, 2006 ) to investigate whether commodity prices are useful in formulating monetary policy. Based on the monthly U.S. data from January 1957 to December 2011, we find the frequency domain causal relationship between non-oil commodity prices and economic activities (e.g., consumer prices and industrial production) has changed dramatically over time. Our results indicate that the non-oil commodity prices are useful in setting monetary policy in the 1970s and the beginning of 1980s, but the usefulness has disappeared completely since the early 1980s. In contrast, the oil price or the commodity price index including oil price can still be used as an informational variable for managing monetary policy after the early 1980s. Copyright Springer-Verlag Berlin Heidelberg 2015

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  • Yanfeng Wei, 2015. "The informational role of commodity prices in formulating monetary policy: a reexamination under the frequency domain," Empirical Economics, Springer, vol. 49(2), pages 537-549, September.
    • Handle: RePEc:spr:empeco:v:49:y:2015:i:2:p:537-549
    DOI: 10.1007/s00181-014-0870-2
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    1. Matteo Farnè & Angela Montanari, 2022. "A Bootstrap Method to Test Granger-Causality in the Frequency Domain," Computational Economics, Springer;Society for Computational Economics, vol. 59(3), pages 935-966, March.
    2. Afees A. Salisu & Raymond Swaray & Hadiza Sa'id, 2021. "Improving forecasting accuracy of the Phillips curve in OECD countries: The role of commodity prices," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 2946-2975, April.
    3. Breitung, Jörg & Schreiber, Sven, 2018. "Assessing causality and delay within a frequency band," Econometrics and Statistics, Elsevier, vol. 6(C), pages 57-73.
    4. Wei, Yanfeng & Guo, Xiaoying, 2017. "Oil price shocks and China's stock market," Energy, Elsevier, vol. 140(P1), pages 185-197.
    5. Ritabrata Bose & Ashima Goyal, 2020. "Disaggregated Indian industrial cycles: A Spectral analysis," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2020-033, Indira Gandhi Institute of Development Research, Mumbai, India.
    6. Wei, Yanfeng & Zhang, Liguo & Guo, Xiaoying & Yang, Ting, 2021. "A theoretical and simulation analysis on the power of the frequency domain causality test," Statistics & Probability Letters, Elsevier, vol. 170(C).
    7. Alfredo Villca & Alejandro Torres-García, 2023. "Commodity price shocks and the business cycles in emerging economies: the role of banking system balance sheets," Empirical Economics, Springer, vol. 65(5), pages 2039-2063, November.
    8. Wei, Yanfeng & Guo, Xiaoying, 2016. "An empirical analysis of the relationship between oil prices and the Chinese macro-economy," Energy Economics, Elsevier, vol. 56(C), pages 88-100.

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    More about this item

    Keywords

    Commodity prices; Predictive power; Frequency domain causality; C32; E31;
    All these keywords.

    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

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