The Effect of Monetary Policy on Real Commodity Prices
AbstractCommodity prices are back. This paper looks at connections between monetary policy, and agricultural and mineral commodities. We begin with the monetary influences on commodity prices, first for a large country such as the United States, then smaller countries. The claim is that low real interest rates lead to high real commodity prices. The theory is an analogy with Dornbusch overshooting. The relationship between real interest rates and real commodity prices is also supported empirically. One channel through which this effect is accomplished is a negative effect of interest rates on the desire to carry commodity inventories. The paper concludes with a consideration of implications for monetary policy.
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 National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12713.
Date of creation: Dec 2006
Date of revision:
Publication status: published as The Effect of Monetary Policy on Real Commodity Prices , Jeffrey A. Frankel. in Asset Prices and Monetary Policy , Campbell. 2008
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Other versions of this item:
- Jeffrey A. Frankel, 2008. "The Effect of Monetary Policy on Real Commodity Prices," NBER Chapters, in: Asset Prices and Monetary Policy, pages 291-333 National Bureau of Economic Research, Inc.
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
- F3 - International Economics - - International Finance
- Q0 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General
This paper has been announced in the following NEP Reports:
- NEP-AGR-2006-12-16 (Agricultural Economics)
- NEP-ALL-2006-12-16 (All new papers)
- NEP-CBA-2006-12-16 (Central Banking)
- NEP-MAC-2006-12-16 (Macroeconomics)
- NEP-MON-2006-12-16 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Frankel, Jeffrey A & Hardouvelis, Gikas A, 1985. "Commodity Prices, Money Surprises and Fed Credibility," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(4), pages 425-38, November.
- N. Gregory Mankiw & Ricardo Reis, 2002.
"What Measure of Inflation Should a Central Bank Target?,"
NBER Working Papers
9375, National Bureau of Economic Research, Inc.
- N. Gregory Mankiw & Ricardo Reis, 2003. "What Measure of Inflation Should a Central Bank Target?," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1058-1086, 09.
- Mankiw, N. Gregory & Reis, Ricardo, 2003. "What Measure of Inflation Should a Central Bank Target?," Scholarly Articles 3415322, Harvard University Department of Economics.
- Mankiw, N. Gregory & Reis, Ricardo, 2002. "What measure of inflation should a central bank target?," Working Paper Series 0170, European Central Bank.
- N. Gregory Mankiw & Ricardo Reis, 2002. "What Measure of Inflation Should a Central Bank Target?," Harvard Institute of Economic Research Working Papers 1984, Harvard - Institute of Economic Research.
- Robert E. Hall, 1982. "Explorations in the Gold Standard and Related Policies for Stabilizing the Dollar," NBER Chapters, in: Inflation: Causes and Effects, pages 111-122 National Bureau of Economic Research, Inc.
- Fama, Eugene F & French, Kenneth R, 1987. "Commodity Futures Prices: Some Evidence on Forecast Power, Premiums,and the Theory of Storage," The Journal of Business, University of Chicago Press, vol. 60(1), pages 55-73, January.
- Brenner, Robin J. & Kroner, Kenneth F., 1995. "Arbitrage, Cointegration, and Testing the Unbiasedness Hypothesis in Financial Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(01), pages 23-42, March.
- Arthur M. Okun, 1975. "Inflation: Its Mechanics and Welfare Costs," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 6(2), pages 351-402.
- Sebastian Edwards & Eduardo Levy Yeyati, 2004.
"Flexible Exchange Rates as Shock Absorbers,"
Business School Working Papers
exchangerates, Universidad Torcuato Di Tella.
- Dusak, Katherine, 1973. "Futures Trading and Investor Returns: An Investigation of Commodity Market Risk Premiums," Journal of Political Economy, University of Chicago Press, vol. 81(6), pages 1387-1406, Nov.-Dec..
- Robert B. Barsky & Lawrence H. Summers, 1985.
"Gibson's Paradox and the Gold Standard,"
NBER Working Papers
1680, National Bureau of Economic Research, Inc.
- Svensson, Lars E O, 1995.
"The Swedish Experience of an Inflation Target,"
CEPR Discussion Papers
1103, C.E.P.R. Discussion Papers.
- Frederic S. Mishkin & Adam S. Posen, 1997.
"Inflation targeting: lessons from four countries,"
Economic Policy Review,
Federal Reserve Bank of New York, issue Aug, pages 9-110.
- Sebastian Edwards, 2002.
"The Great Exchange Rate Debate After Argentina,"
NBER Working Papers
9257, National Bureau of Economic Research, Inc.
- Edwards, Sebastian, 2002. "The great exchange rate debate after Argentina," The North American Journal of Economics and Finance, Elsevier, vol. 13(3), pages 237-252, December.
- Lars E. O. Svensson & Michael Woodford, 2003.
"Implementing Optimal Policy through Inflation-Forecast Targeting,"
NBER Working Papers
9747, National Bureau of Economic Research, Inc.
- Lars E.O. Svensson & Michael Woodford, 2004. "Implementing Optimal Policy through Inflation-Forecast Targeting," NBER Chapters, in: The Inflation-Targeting Debate, pages 19-92 National Bureau of Economic Research, Inc.
- Svensson, Lars E O & Woodford, Michael, 2004. "Implementing Optimal Policy Through Inflation-Forecast Targeting," CEPR Discussion Papers 4229, C.E.P.R. Discussion Papers.
- repec:rus:hseeco:123927 is not listed on IDEAS
- Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
- Edwin M. Truman, 2003. "Inflation Targeting in the World Economy," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 346.
- Boum-Jong Choe, 1990. "Rational expectations and commodity price forecasts," Policy Research Working Paper Series 435, The World Bank.
- Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November.
- Breeden, Douglas T, 1980. " Consumption Risk in Futures Markets," Journal of Finance, American Finance Association, vol. 35(2), pages 503-20, May.
- Frankel, Jeffrey & Saiki, Ayako, 2002. "A Proposal to Anchor Monetary Policy by the Price of the Export Commodity," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 17, pages 417-448.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Guest Contribution: Rejoinder to "Oil Price Spike Exacerbated by Wall Street Speculation?"
by Menzie Chinn in Econbrowser on 2012-07-26 15:35:17
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. 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: ().
If references are entirely missing, you can add them using this form.