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The impact of monetary policy shocks on commodity prices

  • Alessio Anzuini

    ()

    (Bank of Italy)

  • Marco J. Lombardi

    ()

    (European Central Bank)

  • Patrizio Pagano

    ()

    (Bank of Italy)

Global monetary conditions are often cited as a driver of commodity prices. This paper investigates the empirical relationship between US monetary policy and commodity prices by means of a standard VAR system, commonly used in analysing the effects of monetary policy shocks. The results suggest that expansionary US monetary policy shocks drive up the broad commodity price index and all of its components. While these effects are significant, they do not, however, appear to be overwhelmingly large. This finding is confirmed under different identification strategies for the monetary policy shock.

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Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 851.

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Date of creation: Feb 2012
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Handle: RePEc:bdi:wptemi:td_851_12
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  1. Robert B. Barsky & Lutz Kilian, 2002. "Do We Really Know that Oil Caused the Great Stagflation? A Monetary Alternative," NBER Chapters, in: NBER Macroeconomics Annual 2001, Volume 16, pages 137-198 National Bureau of Economic Research, Inc.
  2. Lutz Kilian, 2009. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," American Economic Review, American Economic Association, vol. 99(3), pages 1053-69, June.
  3. Gillman, Max & Nakov, Anton, 2009. "Monetary effects on nominal oil prices," The North American Journal of Economics and Finance, Elsevier, vol. 20(3), pages 239-254, December.
  4. Barsky, Robert & Kilian, Lutz, 2004. "Oil and the Macroeconomy Since the 1970s," CEPR Discussion Papers 4496, C.E.P.R. Discussion Papers.
  5. Timilsina, Govinda R. & Mevel, Simon & Shrestha, Ashish, 2011. "World oil price and biofuels : a general equilibrium analysis," Policy Research Working Paper Series 5673, The World Bank.
  6. Jon Faust & Eric Swanson & and Jonathan H. Wright, 2002. "Identifying vars based on high frequency futures data," International Finance Discussion Papers 720, Board of Governors of the Federal Reserve System (U.S.).
  7. Jean Boivin & Marc P. Giannoni, 2003. "Has Monetary Policy Become More Effective?," NBER Working Papers 9459, National Bureau of Economic Research, Inc.
  8. James D. Hamilton, 2009. "Understanding Crude Oil Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 179-206.
  9. M. J. Lombardi & I. Van Robays, 2011. "Do Financial Investors Destabilize the Oil Price?," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 11/760, Ghent University, Faculty of Economics and Business Administration.
  10. Bahattin Buyuksahin & Jeffrey H. Harris, 2011. "Do Speculators Drive Crude Oil Futures Prices?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 167-202.
  11. Anton Nakov & Andrea Pescatori, 2007. "Oil and the Great Moderation," Banco de Espa�a Working Papers 0735, Banco de Espa�a.
  12. Lutz Kilian & Logan T. Lewis, 2011. "Does the Fed Respond to Oil Price Shocks?," Economic Journal, Royal Economic Society, vol. 121(555), pages 1047-1072, 09.
  13. Lutz Kilian & Clara Vega, 2011. "Do Energy Prices Respond to U.S. Macroeconomic News? A Test of the Hypothesis of Predetermined Energy Prices," The Review of Economics and Statistics, MIT Press, vol. 93(2), pages 660-671, May.
  14. Renee Fry & Callum Jones & Christopher Kent, 2010. "Inflation in an Era of Relative Pirce Shocks," CAMA Working Papers 2010-38, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  15. Fred Furlong, 1989. "Commodity prices and inflation," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue jun16.
  16. Kim, Soyoung, 2001. "International transmission of U.S. monetary policy shocks: Evidence from VAR's," Journal of Monetary Economics, Elsevier, vol. 48(2), pages 339-372, October.
  17. Juan F. Rubio-Ram�rez & Daniel F. Waggoner & Tao Zha, 2010. "Structural Vector Autoregressions: Theory of Identification and Algorithms for Inference," Review of Economic Studies, Oxford University Press, vol. 77(2), pages 665-696.
  18. Alessio Anzuini & Patrizio Pagano & Massimiliano Pisani, 2007. "Oil supply news in a VAR: Information from financial markets," Temi di discussione (Economic working papers) 632, Bank of Italy, Economic Research and International Relations Area.
  19. Kilian, Lutz, 2007. "The Economic Effects of Energy Price Shocks," CEPR Discussion Papers 6559, C.E.P.R. Discussion Papers.
  20. Kim, Soyoung, 1999. "Do monetary policy shocks matter in the G-7 countries? Using common identifying assumptions about monetary policy across countries," Journal of International Economics, Elsevier, vol. 48(2), pages 387-412, August.
  21. Christina D. Romer & David H. Romer, 2003. "A New Measure of Monetary Shocks: Derivation and Implications," NBER Working Papers 9866, National Bureau of Economic Research, Inc.
  22. Pagano Patrizio & Pisani Massimiliano, 2009. "Risk-Adjusted Forecasts of Oil Prices," The B.E. Journal of Macroeconomics, De Gruyter, vol. 9(1), pages 1-28, June.
  23. Frankel, Jeffrey A. & Rose, Andrew K., 2010. "Determinants of Agricultural and Mineral Commodity Prices," Scholarly Articles 4450126, Harvard Kennedy School of Government.
  24. Canova, Fabio & Nicolo, Gianni De, 2002. "Monetary disturbances matter for business fluctuations in the G-7," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1131-1159, September.
  25. Ron Alquist & Lutz Kilian, 2010. "What do we learn from the price of crude oil futures?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(4), pages 539-573.
  26. Scrimgeour, Dean, 2010. "Commodity Price Responses to Monetary Policy Surprises," Working Papers 2010-04, Department of Economics, Colgate University.
  27. Gary B. Gorton & Fumio Hayashi & K. Geert Rouwenhorst, 2013. "The Fundamentals of Commodity Futures Returns," Review of Finance, European Finance Association, vol. 17(1), pages 35-105.
  28. Michael D. Plante & Mine K. Yücel, 2011. "Did speculation drive oil prices? market fundamentals suggest otherwise," Economic Letter, Federal Reserve Bank of Dallas, vol. 6(oct).
  29. repec:acb:camaaa:2010-38 is not listed on IDEAS
  30. Frankel, Jeffrey A & Hardouvelis, Gikas A, 1985. "Commodity Prices, Money Surprises and Fed Credibility," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(4), pages 425-38, November.
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