Monetary Policy and Commodity Prices: an endogenous analysis using an SVAR approach
AbstractThis work analyzes the relationship between real interest rates and commodity prices. According to Frankel’s hypothesis (1986-2006): “low real interest rates lead to high real commodity prices”. However, some empirical evidence suggests that commodity prices can predict monetary policy. In this way, there is an endogeneity between commodity prices and monetary policy. Using Frankel’s model we include a Taylor rule equation in this theoretical model, which let us analyze the endogeneity problem. In order to find empirical support of this model, we estimate SVAR and, using quarterly data from 1962:Q1 to 2009:Q1, we find that the overshooting of commodity prices to 1% increase of real interest rate can be a minimum of 2.86% and a maximum of 5.97% depending on the chosen model. The increase of real interest rate given a 1% increase in commodity prices is positive and significant but of small magnitude (0.20% - 0.05%).
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by BANCO DE LA REPÚBLICA in its series BORRADORES DE ECONOMIA with number 007183.
Date of creation: 27 Jun 2010
Date of revision:
Contact details of provider:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-07-10 (All new papers)
- NEP-CBA-2010-07-10 (Central Banking)
- NEP-MON-2010-07-10 (Monetary Economics)
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Norma Judith Paternina).
If references are entirely missing, you can add them using this form.