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Time-varying monetary policy shocks and the dynamics of Chinese commodity prices

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  • Lyu, Yongjian
  • Yi, Heling
  • Cao, Jin
  • Yang, Mo

Abstract

With the trading volume and openness of the Chinese commodity futures market being developed substantially in recent years, this paper explores the effects of Chinese monetary policy shocks on the dynamics of commodity futures prices under dynamic structural changes by imposing reduced constraints. The results show the following: (1) Monetary policy shocks are fundamental triggers for price changes in most Chinese commodity futures market indices and positive monetary policy shocks significantly push up both aggregate market indices and some sectoral market indices. (2) Commodity sectors have heterogeneous reactions to monetary policy shocks. For example, unlike other commodity sectors, grain is barely affected by monetary policy shocks, which may be due to price regulation of agricultural products and low levels of sector financialization. (3) The relationship between monetary policy shocks and price changes in commodity futures markets is time-varyingly dependent on the economic environment. In particular, the impulse responses for most of the commodity futures market indices tend to be larger during the global financial crisis period, then gradually declined from 2009.

Suggested Citation

  • Lyu, Yongjian & Yi, Heling & Cao, Jin & Yang, Mo, 2022. "Time-varying monetary policy shocks and the dynamics of Chinese commodity prices," Pacific-Basin Finance Journal, Elsevier, vol. 75(C).
    • Handle: RePEc:eee:pacfin:v:75:y:2022:i:c:s0927538x22001317
    DOI: 10.1016/j.pacfin.2022.101836
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    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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