U.S. Monetary Policy, Commodity Prices And The Financialization Hypothesis

Many studies point out the growing correlations within financial markets, while others highlight the financialization of commodity markets. The purpose of this article is to revisit the relationships between various financial assets and commodity markets by taking into account the U.S. monetary policy and therefore the implementation of non-standard measures. In addition to oil, stock and bond markets, U.S. policy rates and a great deal of agricultural prices have been over time considered through a DCC-GARCH model, between 1995-2015. We find that agricultural markets uphold the financialization hypothesis, implying an increase in market-prices’ correlations and so raises the question of agricultural prices’ drivers. Interestingly, conditional correlations between the U.S. monetary policy and agricultural prices have decreased since 2010, which indicates that the implementation of non-standard monetary policy measures reduces spillover effects on asset prices, especially raw commodities. Such a result in turn highlights changing relationships between monetary, financial and physical markets, in a context of very weak policy rates over a long period.