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Global commodity prices and macroeconomic fluctuations in a low interest rate environment

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  • Ahmed, Rashad

Abstract

This paper takes a multi-country perspective to investigate the macroeconomic consequences of recessionary demand shocks when interest rates are low. Global demand shocks are recovered from a global commodity price factor that is shown to be highly representative of global demand conditions. Country-specific adjustments to these global commodity-based demand shocks are then estimated across 17 advanced economies using non-linear VARs. Domestic real GDP growth, equity returns, and inflation are significantly more sensitive to these shocks when nominal interest rates fall below a threshold of about 3%. When interest rates are low, recessionary commodity demand shocks lead to higher domestic real interest rates as nominal policy rates become constrained by the zero lower bound, consistent with a deflation trap driving the increase in domestic sensitivity to global shocks.

Suggested Citation

  • Ahmed, Rashad, 2023. "Global commodity prices and macroeconomic fluctuations in a low interest rate environment," Energy Economics, Elsevier, vol. 127(PB).
  • Handle: RePEc:eee:eneeco:v:127:y:2023:i:pb:s0140988323006126
    DOI: 10.1016/j.eneco.2023.107114
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    More about this item

    Keywords

    Zero lower bound; Commodities; Monetary policy; Business cycles;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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