Effects of Speculation and Interest Rates in a “Carry Trade” Model of Commodity Prices
AbstractThe paper presents and estimates a model of the prices of oil and other storable commodities, a model that can be characterized as reflecting the carry trade. It focuses on speculative factors, here defined as the trade-off between interest rates on the one hand and market participants’ expectations of future price changes on the other hand. It goes beyond past research by bringing to bear new data sources: survey data to measure expectations of future changes in commodity prices and options data to measure perceptions of risk. Some evidence is found of a negative effect of interest rates on the demand for inventories and thereby on commodity prices and positive effects of expected future price gains on inventory demand and thereby on today’s commodity prices.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19463.
Date of creation: Sep 2013
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Other versions of this item:
- Frankel, Jeffrey A., 2014. "Effects of speculation and interest rates in a “carry trade” model of commodity prices," Journal of International Money and Finance, Elsevier, vol. 42(C), pages 88-112.
- Frankel, Jeffrey A., 2013. "Effects of Speculation and Interest Rates in a "Carry Trade" Model of Commodity Prices," Working Paper Series rwp13-022, Harvard University, John F. Kennedy School of Government.
- Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
- Q39 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Other
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-09-26 (All new papers)
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