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Global Money Supply and Energy and Non-Energy Commodity Prices: A MS-TV-VAR Approach

Author

Listed:
  • Stefano Grassi
  • Francesco Ravazzolo
  • Joaquin Vespignani
  • Giorgio Vocalelli

Abstract

This paper shows that the impact of the global money supply is disproportionally high for energy than for non-energy commodities prices. An increase in the global money supply for energy commodity prices results mostly in demand-pull inflation. However, for non-energy commodity prices, an increase in global money supply results in demand-pull inflation and cost-push inflation, as energy is a critical input for non-energy commodities. We introduce a Markov Switching framework with time-varying transition probabilities to quantify this effect. This macro-econometric model accounts for periods when the global money supply growth is slow, moderate, and fast. We find that the response to global money supply shocks is higher for energy than for non-energy commodity prices. We also find heterogeneous responses for both energy and non-energy commodities across regimes.

Suggested Citation

  • Stefano Grassi & Francesco Ravazzolo & Joaquin Vespignani & Giorgio Vocalelli, 2023. "Global Money Supply and Energy and Non-Energy Commodity Prices: A MS-TV-VAR Approach," CAMA Working Papers 2023-13, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2023-13
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    JEL classification:

    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F01 - International Economics - - General - - - Global Outlook
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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