The Effect of Monetary Policy on Real Commodity Prices
Commodity prices are back. This paper looks at connections between monetary policy, and agricultural and mineral commodities. We begin with the monetary influences on commodity prices, first for a large country such as the United States, then smaller countries. The claim is that low real interest rates lead to high real commodity prices. The theory is an analogy with Dornbusch overshooting. The relationship between real interest rates and real commodity prices is also supported empirically. One channel through which this effect is accomplished is a negative effect of interest rates on the desire to carry commodity inventories. The paper concludes with a consideration of implications for monetary policy.
|Date of creation:||Dec 2006|
|Date of revision:|
|Publication status:||published as The Effect of Monetary Policy on Real Commodity Prices , Jeffrey A. Frankel. in Asset Prices and Monetary Policy , Campbell. 2008|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
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.:
- Hendrik Bessembinder, 1993. "An empirical analysis of risk premia in futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 13(6), pages 611-630, 09.
- Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
- Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, Oxford University Press, vol. 100(4), pages 1169-1189.
- Robert E. Hall, 1982. "Explorations in the Gold Standard and Related Policies for Stabilizing the Dollar," NBER Chapters, in: Inflation: Causes and Effects, pages 111-122 National Bureau of Economic Research, Inc.
- Edwin M. Truman, 2003. "Inflation Targeting in the World Economy," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 346, January.
- Robert W. Kolb, 1992. "Is normal backwardation normal?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 12(1), pages 75-91, 02.
- Brenner, Robin J. & Kroner, Kenneth F., 1995. "Arbitrage, Cointegration, and Testing the Unbiasedness Hypothesis in Financial Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(01), pages 23-42, March.
- Jian Yang & David A. Bessler & David J. Leatham, 2001. "Asset storability and price discovery in commodity futures markets: A new look," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 21(3), pages 279-300, 03.
- Frederic S. Mishkin & Adam S. Posen, 1997.
"Inflation targeting: lessons from four countries,"
Economic Policy Review,
Federal Reserve Bank of New York, issue Aug, pages 9-110.
- Arthur M. Okun, 1975. "Inflation: Its Mechanics and Welfare Costs," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 6(2), pages 351-402.
- Mankiw, N. Gregory & Reis, Ricardo, 2003.
"What Measure of Inflation Should a Central Bank Target?,"
3415322, Harvard University Department of Economics.
- N. Gregory Mankiw & Ricardo Reis, 2003. "What Measure of Inflation Should a Central Bank Target?," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1058-1086, 09.
- N. Gregory Mankiw & Ricardo Reis, 2002. "What Measure of Inflation Should a Central Bank Target?," Harvard Institute of Economic Research Working Papers 1984, Harvard - Institute of Economic Research.
- N. Gregory Mankiw & Ricardo Reis, 2002. "What Measure of Inflation Should a Central Bank Target?," NBER Working Papers 9375, National Bureau of Economic Research, Inc.
- Mankiw, N. Gregory & Reis, Ricardo, 2002. "What measure of inflation should a central bank target?," Working Paper Series 0170, European Central Bank.
- repec:rus:hseeco:123927 is not listed on IDEAS
- Breeden, Douglas T, 1980. " Consumption Risk in Futures Markets," Journal of Finance, American Finance Association, vol. 35(2), pages 503-20, May.
- Barsky, Robert B & Summers, Lawrence H, 1988.
"Gibson's Paradox and the Gold Standard,"
Journal of Political Economy,
University of Chicago Press, vol. 96(3), pages 528-50, June.
- Edwards, Sebastian & Levy Yeyati, Eduardo, 2005.
"Flexible exchange rates as shock absorbers,"
European Economic Review,
Elsevier, vol. 49(8), pages 2079-2105, November.
- Sebastian Edwards & Eduardo Levy Yeyati, 2004. "Flexible Exchange Rates as Shock Absorbers," Business School Working Papers exchangerates, Universidad Torcuato Di Tella.
- Sebastian Edwards & Eduardo Levy Yeyati, 2003. "Flexible Exchange Rates as Shock Absorbers," NBER Working Papers 9867, National Bureau of Economic Research, Inc.
- Sebastian Edwards, 2002.
"The Great Exchange Rate Debate after Argentina,"
74, Oesterreichische Nationalbank (Austrian Central Bank).
- Edwards, Sebastian, 2002. "The great exchange rate debate after Argentina," The North American Journal of Economics and Finance, Elsevier, vol. 13(3), pages 237-252, December.
- T. Randall Fortenbery & Hector O. Zapata, 1997.
"An evaluation of price linkages between futures and cash markets for cheddar cheese,"
Journal of Futures Markets,
John Wiley & Sons, Ltd., vol. 17(3), pages 279-301, 05.
- Fortenbery, T. Randall & Zapata, Hector O., 1995. "An Evaluation of Price Linkages Between Futures and Cash Markets for Cheddar Cheese," Working Papers 204126, University of Wisconsin-Madison, Department of Agricultural and Applied Economics, Food System Research Group.
- Fama, Eugene F & French, Kenneth R, 1987. "Commodity Futures Prices: Some Evidence on Forecast Power, Premiums,and the Theory of Storage," The Journal of Business, University of Chicago Press, vol. 60(1), pages 55-73, January.
- Lars E.O. Svensson, 1995.
"The Swedish Experience of an Inflation Target,"
NBER Working Papers
4985, National Bureau of Economic Research, Inc.
- 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.
- Lars E.O. Svensson & Michael Woodford, 2004.
"Implementing Optimal Policy through Inflation-Forecast Targeting,"
in: The Inflation-Targeting Debate, pages 19-92
National Bureau of Economic Research, Inc.
- Svensson, Lars E O & Woodford, Michael, 2004. "Implementing Optimal Policy Through Inflation-Forecast Targeting," CEPR Discussion Papers 4229, C.E.P.R. Discussion Papers.
- Lars E. O. Svensson & Michael Woodford, 2003. "Implementing Optimal Policy through Inflation-Forecast Targeting," NBER Working Papers 9747, National Bureau of Economic Research, Inc.
- Boum-Jong Choe, 1990. "Rational expectations and commodity price forecasts," Policy Research Working Paper Series 435, The World Bank.
- Dusak, Katherine, 1973. "Futures Trading and Investor Returns: An Investigation of Commodity Market Risk Premiums," Journal of Political Economy, University of Chicago Press, vol. 81(6), pages 1387-1406, Nov.-Dec..
- Frankel, Jeffrey & Saiki, Ayako, 2002. "A Proposal to Anchor Monetary Policy by the Price of the Export Commodity," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 17, pages 417-448.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:12713. 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: ()
If references are entirely missing, you can add them using this form.