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Global Liquidity and Commodity Prices

Author

Listed:
  • Hyunju Kang

    () (Korea Capital Market Institute)

  • Bok-Keun Yu

    () (Micro & Institutional Economics Team, Economic Research Institute, The Bank of Korea)

  • Jongmin Yu

    () (Hongik University)

Abstract

While monetary easing in major economies and the greater participation of financial institutions in commodity trading have enhanced the financialization of commodity markets since the global financial crisis, this paper empirically investigates whether the impact of global liquidity on commodity prices has grown since the crisis. For the agricultural products, energy and metals sectors, this paper uses a structural vector autoregression model of commodity supply, demand and prices with global liquidity to address the short-run relationship between global liquidity and commodity prices. The key finding is that the effect of global liquidity has been more pronounced for energy and metals commodity prices since the global financial crisis. This paper also suggests a price-based liquidity measure has a greater explanatory power for the commodity price dynamics than commonly-used monetary aggregates in the post-crisis period.

Suggested Citation

  • Hyunju Kang & Bok-Keun Yu & Jongmin Yu, 2015. "Global Liquidity and Commodity Prices," Working Papers 2015-14, Economic Research Institute, Bank of Korea.
  • Handle: RePEc:bok:wpaper:1514
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    References listed on IDEAS

    as
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    Cited by:

    1. Li, Jian & Chavas, Jean-Paul & Etienne, Xiaoli & Li, Chongguang, 2016. "Commodity Price Bubbles and Macroeconomics: Evidence from Chinese Agricultural Markets," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235068, Agricultural and Applied Economics Association.

    More about this item

    Keywords

    Commodity prices; Global liquidity; Structural vector autoregression;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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