Commodity prices, money and inflation
The influence of commodity prices on consumer prices is usually seen as originating in commodity markets. We argue, however, that long run and short run relationships should exist between commodity prices, consumer prices and money and that the influence of commodity prices on consumer prices occurs through a money-driven overshooting of commodity prices being corrected over time. Using a cointegrating VAR framework and US data, our empirical findings are supportive of these relationships, with both commodity and consumer prices proportional to the money supply in the long run, commodity prices initially overshooting their new equilibrium values in response to a money supply shock, and the deviation of commodity prices from their equilibrium values having explanatory power for subsequent consumer price inflation. JEL Classification: E310, E510, E520
|Date of creation:||Mar 2007|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +49 69 1344 0
Fax: +49 69 1344 6000
Web page: http://www.ecb.europa.eu/Email:
More information through EDIRC
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.:
- Jeff Fuhrer & George Moore, 1989.
"Monetary policy rules and the indicator properties of asset prices,"
Finance and Economics Discussion Series
89, Board of Governors of the Federal Reserve System (U.S.).
- Fuhrer, Jeff & Moore, George, 1992. "Monetary policy rules and the indicator properties of asset prices," Journal of Monetary Economics, Elsevier, vol. 29(2), pages 303-336, April.
- Pecchenino, R. A., 1992. "Commodity prices and the CPI: Cointegration, information, and signal extraction," International Journal of Forecasting, Elsevier, vol. 7(4), pages 493-500, March.
- Reynard, Samuel, 2007.
"Maintaining low inflation: Money, interest rates, and policy stance,"
Journal of Monetary Economics,
Elsevier, vol. 54(5), pages 1441-1471, July.
- Samuel Reynard, 2007. "Maintaining Low Inflation: Money, Interest Rates, and Policy Stance," Working Papers 2007-05, Swiss National Bank.
- Reynard, Samuel, 2007. "Maintaining low inflation: money, interest rates, and policy stance," Working Paper Series 0756, European Central Bank.
- Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
- 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.
- Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
- Batini, Nicoletta & Nelson, Edward, 2001.
"The Lag from Monetary Policy Actions to Inflation: Friedman Revisited,"
Wiley Blackwell, vol. 4(3), pages 381-400, Winter.
- Nicoletta Batini & Edward Nelson, 2001. "The Lag from Monetary Policy Actions to Inflation: Friedman Revisited," Discussion Papers 06, Monetary Policy Committee Unit, Bank of England.
- Robert B. Barsky & Lutz Kilian, 2001.
"Do We Really Know that Oil Caused the Great Stagflation? A Monetary Alternative,"
NBER Working Papers
8389, National Bureau of Economic Research, Inc.
- 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.
- Hafer, R.W. & Jones, Garett, 2008. "Dynamic IS curves with and without money: An international comparison," Journal of International Money and Finance, Elsevier, vol. 27(4), pages 609-616, June.
- Fred Furlong & Robert Ingenito, 1996.
"Commodity prices and inflation,"
Federal Reserve Bank of San Francisco, pages 27-47.
- 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.
- 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.
- Roy H. Webb, 1988. "Commodity prices as predictors of aggregate price change," Economic Review, Federal Reserve Bank of Richmond, issue Nov, pages 3-11.
- Hafer, R.W. & Haslag, Joseph H. & Jones, Garett, 2007. "On money and output: Is money redundant?," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 945-954, April.
- Surrey, M J C, 1989. "Money, Commodity Prices and Inflation: Some Simple Tests," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 51(3), pages 219-38, August.
When requesting a correction, please mention this item's handle: RePEc:ecb:ecbwps:20070738. 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: (Official Publications)
If references are entirely missing, you can add them using this form.