Commodity Prices and Inflation Expectations in the United States
AbstractU.S. monetary policy can remain extraordinarily accommodative only if longer-term inflation expectations stay well-anchored, including in response to commodity price shocks. We find that oil price shocks have a statistically significant, but economically small impact on longer-term inflation compensation embedded in U.S. Treasury bonds. The estimated effect is larger for the post-crisis period, and robust to controlling for measures of liquidity risk premia. Oil price shocks are also correlated with the variance of longer-term inflation expectations in the University of Michigan Survey of Consumers in the post-crisis period. These results are not attributable to looser monetary policy - oil price increases were associated with expectations of a faster monetary tightening after the crisis. Overall, the findings are consistent with some impact of commodity prices on long-term inflation expectations and/or on inflation rate risk.
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Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 12/89.
Date of creation: 01 Mar 2012
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This paper has been announced in the following NEP Reports:
- NEP-AGR-2012-04-23 (Agricultural Economics)
- NEP-ALL-2012-04-23 (All new papers)
- NEP-CBA-2012-04-23 (Central Banking)
- NEP-MAC-2012-04-23 (Macroeconomics)
- NEP-MON-2012-04-23 (Monetary Economics)
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