Commodity prices and inflation: Testing in the frequency domain
We provide evidence for a long term, positive relation between commodity prices and inflation. However, this is only detected when frequency dependency in the regression is statistically accounted for, suggesting nonlinear dynamics between the variables. We also test whether commodity prices can be used to forecast inflation. Again relying on frequency domain methods, we indeed find support for long term causality from commodities to inflation. Moreover, the information content of commodity futures prices is robust to the effects of several financial and economic variables.
If 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
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.:
- Garner, C Alan, 1989. "Commodity Prices: Policy Target or Information Variable? A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(4), pages 508-14, November.
- Richard Ashley & Randal Verbrugge, 2009.
"Frequency Dependence in Regression Model Coefficients: An Alternative Approach for Modeling Nonlinear Dynamic Relationships in Time Series,"
Taylor & Francis Journals, vol. 28(1-3), pages 4-20.
- Richard A. Ashley. & Randall J. Verbrugge, 2006. "Frequency Dependence in Regression Model Coefficients: An Alternative Approach for Modeling Nonlinear Dynamic Relationships in Time Series," Working Papers e06-7, Virginia Polytechnic Institute and State University, Department of Economics.
- Frederick T. Furlong, 1989.
"Commodity prices and inflation,"
FRBSF Economic Letter,
Federal Reserve Bank of San Francisco, issue jun16.
- Tully, Edel & Lucey, Brian M., 2007. "A power GARCH examination of the gold market," Research in International Business and Finance, Elsevier, vol. 21(2), pages 316-325, June.
- Browne, Frank & Cronin, David, 2006.
"Commodity Prices, Money and Inflation,"
Research Technical Papers
16/RT/06, Central Bank of Ireland.
- Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
- R. F. Engle, 1972.
"Band Spectrum Regressions,"
96, Massachusetts Institute of Technology (MIT), Department of Economics.
- C. Alan Garner, 1995. "How useful are leading indicators of inflation?," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 5-18.
- Stephen G Cecchetti & Richhild Moessner, 2008. "Commodity prices and inflation dynamics," BIS Quarterly Review, Bank for International Settlements, December.
- Jeffrey A. Frankel, 2008.
"The Effect of Monetary Policy on Real Commodity Prices,"
in: Asset Prices and Monetary Policy, pages 291-333
National Bureau of Economic Research, Inc.
- Jeffrey A. Frankel, 2006. "The Effect of Monetary Policy on Real Commodity Prices," NBER Working Papers 12713, National Bureau of Economic Research, Inc.
- Hyung, N. & Franses, Ph.H.B.F., 2001.
"Structural breaks and long memory in US inflation rates: do they matter for forecasting?,"
Econometric Institute Research Papers
EI 2001-13, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
- Hyung, Namwon & Franses, Philip Hans & Penm, Jack, 2006. "Structural breaks and long memory in US inflation rates: Do they matter for forecasting?," Research in International Business and Finance, Elsevier, vol. 20(1), pages 95-110, March.
- 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.
- Bhar, Ramaprasad & Hamori, Shigeyuki, 2008. "Information content of commodity futures prices for monetary policy," Economic Modelling, Elsevier, vol. 25(2), pages 274-283, March.
- Jaan Masso & Karsten Staehr, 2005.
"Inflation Dynamics And Nominal Adjustment In The Baltic States,"
University of Tartu - Faculty of Economics and Business Administration Working Paper Series
35, Faculty of Economics and Business Administration, University of Tartu (Estonia).
- Masso, Jaan & Staehr, Karsten, 2005. "Inflation dynamics and nominal adjustment in the Baltic States," Research in International Business and Finance, Elsevier, vol. 19(2), pages 281-303, June.
- Breitung, Jorg & Candelon, Bertrand, 2006. "Testing for short- and long-run causality: A frequency-domain approach," Journal of Econometrics, Elsevier, vol. 132(2), pages 363-378, June.
- Cody, Brian J & Mills, Leonard O, 1991. "The Role of Commodity Prices in Formulating Monetary Policy," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 358-65, May.
- Calista Cheung, 2009. "Are Commodity Prices Useful Leading Indicators of Inflation?," Discussion Papers 09-5, Bank of Canada.
- S. Brock Blomberg & Ethan S. Harris, 1995. "The commodity-consumer price connection: fact or fable?," Economic Policy Review, Federal Reserve Bank of New York, issue Oct, pages 21-38.
When requesting a correction, please mention this item's handle: RePEc:eee:riibaf:v:25:y:2011:i:3:p:229-237. See general 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: (Zhang, Lei)
If references are entirely missing, you can add them using this form.