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The impact of monetary liquidity on Chinese aluminum prices

  • Sun, Zesheng
  • Sun, Bianxia
  • Lin, Sharon X.
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    By expanding Frankel and Rose's (2009) theoretical model to consider the interaction of commodity prices with both money liquidity and expectation formation, this paper empirically studies the long-run relationship and short-term dynamics between aluminum prices and money liquidity via Vector autoregressive (VAR) and Impulse Response Function methodologies. Our results show that: (1) a cointegration relationship between money liquidity and Chinese aluminum prices exists, and monetary liquidity positively significantly influences the price over long periods; (2) a structural change has been found during the 2008 Financial Crisis and the change of Chinese monetary policies; and (3) the negative impact of production capacity mechanism on aluminum prices coexists with the positive impact of financial asset returns mechanism, to allow for varied market expectations on aluminum prices within and outside China.

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    Article provided by Elsevier in its journal Resources Policy.

    Volume (Year): 38 (2013)
    Issue (Month): 4 ()
    Pages: 512-522

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    Handle: RePEc:eee:jrpoli:v:38:y:2013:i:4:p:512-522
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30467

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    6. anonymous, 2010. "Monetary policy report to the Congress," Web Site 85, Board of Governors of the Federal Reserve System (U.S.).
    7. Findley, David F, et al, 1998. "New Capabilities and Methods of the X-12-ARIMA Seasonal-Adjustment Program," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(2), pages 127-52, April.
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