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Informational roles of commodity prices for monetary policy: evidence from the Euro area

  • Go Tamakoshi

    ()

    (Kobe University)

  • Shigeyuki Hamori

    ()

    (Kobe University)

This paper examines the linear and nonlinear causal relationships between commodity price indices and macroeconomic variables such as the consumer price index (CPI) and the industrial production index (IP) in the Euro zone. We use monthly time series data from January 1999 to December 2011 and employ a solid nonparametric, nonlinear causality test by Diks and Panchenko (2006) as well as the linear Granger causality test using Lag Augmented Vector Autoregression (LA-VAR) approach. Main findings of the study include: (i) Oil price only linearly Granger-causes the CPI and hence can be seen as a better information variable for the general price level than non-energy commodity price. (ii) There is a significant one-way linear causality from commodity price to IP. (iii) A significant nonlinear relationship between CPI and IP is identified by the nonparametric causality test. Such results are relevant for monetary policy makers who wish to mitigate the possible future inflation by using commodity or oil price indices as information variables.

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File URL: http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I2-P122.pdf
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Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 32 (2012)
Issue (Month): 2 ()
Pages: 1282-1290

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Handle: RePEc:ebl:ecbull:eb-12-00292
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  1. Bekiros, S. & Diks, C.G.H., 2007. "The Relationship between Crude Oil Spot and Futures Prices: Cointegration, Linear and Nonlinear Causality," CeNDEF Working Papers 07-11, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  2. Awokuse, Titus O. & Yang, Jian, 2003. "The informational role of commodity prices in formulating monetary policy: a reexamination," Economics Letters, Elsevier, vol. 79(2), pages 219-224, May.
  3. Diks, Cees & Panchenko, Valentyn, 2006. "A new statistic and practical guidelines for nonparametric Granger causality testing," Journal of Economic Dynamics and Control, Elsevier, vol. 30(9-10), pages 1647-1669.
  4. Hasanov, Mübariz & Araç, Aysen & Telatar, Funda, 2010. "Nonlinearity and structural stability in the Phillips curve: Evidence from Turkey," Economic Modelling, Elsevier, vol. 27(5), pages 1103-1115, September.
  5. Kyrtsou, Catherine & Labys, Walter C., 2006. "Evidence for chaotic dependence between US inflation and commodity prices," Journal of Macroeconomics, Elsevier, vol. 28(1), pages 256-266, March.
  6. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
  7. repec:ebl:ecbull:v:5:y:2007:i:13:p:1-7 is not listed on IDEAS
  8. Shigeyuki Hamori, 2007. "The information role of commodity prices in formulating monetary policy: some evidence from Japan," Economics Bulletin, AccessEcon, vol. 5(13), pages 1-7.
  9. Fourcans, Andre & Vranceanu, Radu, 2007. "The ECB monetary policy: Choices and challenges," Journal of Policy Modeling, Elsevier, vol. 29(2), pages 181-194.
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