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The effect of inflation on real commodity prices

  • Christopher Reicher
  • Johannes Utlaut

Recent research has shown that economic conditions have an important effect on real commodity prices. We quantify the contribution of fluctuations in inflation to this particular link. In the data, a temporary rise in inflation causes real commodity prices to rise, as does a rise in trend inflation. We find that a simple dynamic equilibrium model of commodity supply and demand gives a realistic response of real commodity prices to inflation. Based on historical simulations, shocks to inflation played an important role in commodity price dynamics during the 1970s, but they have contributed negligibly to commodity price movements since then

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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1704.

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Length: 47 pages
Date of creation: May 2011
Date of revision:
Handle: RePEc:kie:kieliw:1704
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