Commodity prices, interest rates and the dollar
AbstractWe investigate whether a decline in real interest rates and the US dollar contribute to higher commodity prices, and whether commodity prices tend to display overshooting behavior in response to changes in especially real interest rates. We analyze the behavior of a broad range of real commodity prices, i.e. real prices of crude oil, food, metals and industrial raw materials. The analysis is based on structural VAR models estimated on quarterly data over the period 1990q1–2007q4. Our results suggest that commodity prices increase significantly in response to a reduction in real interest rates. Moreover, we find that oil prices as well as metal prices tend to display overshooting behavior in response to interest rate changes. The evidence also suggests that a decline in the dollar leads to a surge in commodity prices. Shocks to interest rates and the dollar are found to account for substantial shares of fluctuations in the commodity prices.
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Bibliographic InfoPaper provided by Norges Bank in its series Working Paper with number 2008/12.
Length: 33 pages
Date of creation: 20 Aug 2008
Date of revision:
Commodity prices; interest rates; exchange rates; VAR models;
Other versions of this item:
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
- E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
- Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade
- Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
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