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The effect of inflation on real commodity prices

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  • Reicher, Christopher Phillip
  • Utlaut, Johannes Friederich

Abstract

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.

Suggested Citation

  • Reicher, Christopher Phillip & Utlaut, Johannes Friederich, 2011. "The effect of inflation on real commodity prices," Kiel Working Papers 1704, Kiel Institute for the World Economy (IfW).
  • Handle: RePEc:zbw:ifwkwp:1704
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    References listed on IDEAS

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    More about this item

    Keywords

    Commodity prices; monetary policy; inflation; the 1970s;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • Q00 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - General

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