IDEAS home Printed from https://ideas.repec.org/p/bno/worpap/2008_12.html
   My bibliography  Save this paper

Commodity prices, interest rates and the dollar

Author

Listed:
  • Q. Farooq Akram

    (Norges Bank (Central Bank of Norway))

Abstract

We investigate whether a decline in real interest rates and the US dollar contribute to higher commodity prices, and whether commodity prices tend to display overshooting behavior in response to changes in especially real interest rates. We analyze the behavior of a broad range of real commodity prices, i.e. real prices of crude oil, food, metals and industrial raw materials. The analysis is based on structural VAR models estimated on quarterly data over the period 1990q1–2007q4. Our results suggest that commodity prices increase significantly in response to a reduction in real interest rates. Moreover, we find that oil prices as well as metal prices tend to display overshooting behavior in response to interest rate changes. The evidence also suggests that a decline in the dollar leads to a surge in commodity prices. Shocks to interest rates and the dollar are found to account for substantial shares of fluctuations in the commodity prices.

Suggested Citation

  • Q. Farooq Akram, 2008. "Commodity prices, interest rates and the dollar," Working Paper 2008/12, Norges Bank.
  • Handle: RePEc:bno:worpap:2008_12
    as

    Download full text from publisher

    File URL: https://www.norges-bank.no/en/news-events/news-publications/Papers/Working-Papers/2008/WP-200812/
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Cashin, Paul & Cespedes, Luis F. & Sahay, Ratna, 2004. "Commodity currencies and the real exchange rate," Journal of Development Economics, Elsevier, vol. 75(1), pages 239-268, October.
    2. Jeffrey A. Frankel, 2008. "The Effect of Monetary Policy on Real Commodity Prices," NBER Chapters, in: Asset Prices and Monetary Policy, pages 291-333, National Bureau of Economic Research, Inc.
    3. Ron Alquist & Menzie D. Chinn, 2008. "Conventional and unconventional approaches to exchange rate modelling and assessment," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 13(1), pages 2-13.
    4. Hilde C. Bjørnland, 2005. "Monetary policy and the illusionary exchange rate puzzle," Working Paper 2005/11, Norges Bank.
    5. Jagjit S. Chadha & Lucio Sarno & Giorgio Valente, 2004. "Monetary Policy Rules, Asset Prices, and Exchange Rates," IMF Staff Papers, Palgrave Macmillan, vol. 51(3), pages 529-552, November.
    6. Deaton, Angus & Laroque, Guy, 1996. "Competitive Storage and Commodity Price Dynamics," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 896-923, October.
    7. Clarida, Richard & Gali, Jordi & Gertler, Mark, 1998. "Monetary policy rules in practice Some international evidence," European Economic Review, Elsevier, vol. 42(6), pages 1033-1067, June.
    8. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-1176, December.
    9. Harold Hotelling, 1931. "The Economics of Exhaustible Resources," Journal of Political Economy, University of Chicago Press, vol. 39(2), pages 137-137.
    10. Mr. Noureddine Krichene, 2008. "Recent Inflationary Trends in World Commodities Markets," IMF Working Papers 2008/130, International Monetary Fund.
    11. Jagjit S. Chadha & Lucio Sarno & Giorgio Valente, 2004. "Monetary Policy Rules, Asset Prices, and Exchange Rates," IMF Staff Papers, Palgrave Macmillan, vol. 51(3), pages 529-552, November.
    12. Godfrey, Leslie G, 1978. "Testing for Higher Order Serial Correlation in Regression Equations When the Regressors Include Lagged Dependent Variables," Econometrica, Econometric Society, vol. 46(6), pages 1303-1310, November.
    13. James D. Hamilton, 2009. "Understanding Crude Oil Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 179-206.
    14. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    15. Lütkepohl,Helmut & Krätzig,Markus (ed.), 2004. "Applied Time Series Econometrics," Cambridge Books, Cambridge University Press, number 9780521839198.
    16. Q. Farooq Akram, 2004. "Oil prices and exchange rates: Norwegian evidence," Econometrics Journal, Royal Economic Society, vol. 7(2), pages 476-504, December.
    17. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-248, April.
    18. Hanson, Michael S., 2004. "The "price puzzle" reconsidered," Journal of Monetary Economics, Elsevier, vol. 51(7), pages 1385-1413, October.
    19. Lütkepohl,Helmut & Krätzig,Markus (ed.), 2004. "Applied Time Series Econometrics," Cambridge Books, Cambridge University Press, number 9780521547871.
    20. Jeffrey A. Frankel, 1986. "Expectations and Commodity Price Dynamics: The Overshooting Model," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 68(2), pages 344-348.
    21. Neil Kellard & Paul Newbold & Tony Rayner & Christine Ennew, 1999. "The relative efficiency of commodity futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 19(4), pages 413-432, June.
    22. Favero, Carlo A., 2001. "Applied Macroeconometrics," OUP Catalogue, Oxford University Press, number 9780198296850.
    23. Lewis Cecil Gray, 1914. "Rent under the Assumption of Exhaustibility," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 28(3), pages 466-489.
    24. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-144, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Śmiech, Sławomir & Papież, Monika & Dąbrowski, Marek A., 2015. "Does the euro area macroeconomy affect global commodity prices? Evidence from a SVAR approach," International Review of Economics & Finance, Elsevier, vol. 39(C), pages 485-503.
    2. Marc Gronwald & Johannes Mayr & Sultan Orazbayev, 2009. "Estimating the effects of oil price shocks on the Kazakh economy," ifo Working Paper Series 81, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    3. Verheyen, Florian, 2010. "Monetary Policy, Commodity Prices and Infl ation – Empirical Evidence from the US," Ruhr Economic Papers 216, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    4. Hilde C. Bjørnland, 2009. "Oil Price Shocks And Stock Market Booms In An Oil Exporting Country," Scottish Journal of Political Economy, Scottish Economic Society, vol. 56(2), pages 232-254, May.
    5. Boschi, Melisso & Pieroni, Luca, 2009. "Aluminium market and the macroeconomy," Journal of Policy Modeling, Elsevier, vol. 31(2), pages 189-207.
    6. Sugra Ingilab Humbatova & Natig Qadim-Oglu Hajiyev, 2019. "Oil Factor in Economic Development," Energies, MDPI, vol. 12(8), pages 1-40, April.
    7. Algieri, Bernardina, 2013. "A Roller Coaster Ride: an empirical investigation of the main drivers of wheat price," Discussion Papers 145556, University of Bonn, Center for Development Research (ZEF).
    8. Florian Verheyen, 2010. "Monetary Policy, Commodity Prices and Infl ation – Empirical Evidence from the US," Ruhr Economic Papers 0216, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    9. Huang, Shupei & An, Haizhong & Wen, Shaobo & An, Feng, 2017. "Revisiting driving factors of oil price shocks across time scales," Energy, Elsevier, vol. 139(C), pages 617-629.
    10. Colin A. Carter & Gordon C. Rausser & Aaron Smith, 2011. "Commodity Booms and Busts," Annual Review of Resource Economics, Annual Reviews, vol. 3(1), pages 87-118, October.
    11. repec:zbw:rwirep:0216 is not listed on IDEAS
    12. Charfeddine, Lanouar & Barkat, Karim, 2020. "Short- and long-run asymmetric effect of oil prices and oil and gas revenues on the real GDP and economic diversification in oil-dependent economy," Energy Economics, Elsevier, vol. 86(C).
    13. Sima Siami‐Namini, 2021. "U.S. Monetary Policy and Commodity Prices: A SVECM Approach," Economic Papers, The Economic Society of Australia, vol. 40(4), pages 288-312, December.
    14. Grossmann, Axel & Kim, Jintae, 2022. "The impact of U.S. dollar movements and U.S. dollar states on non-perishable commodity prices," Research in International Business and Finance, Elsevier, vol. 61(C).
    15. Leonardo Quero-Virla, 2016. "Macroeconomic Effects of Oil Price Fluctuations in Colombia," Revista Ecos de Economía, Universidad EAFIT, vol. 20(43), pages 23-38, December.
    16. Kyritsis, Evangelos & Serletis, Apostolos, 2018. "The zero lower bound and market spillovers: Evidence from the G7 and Norway," Research in International Business and Finance, Elsevier, vol. 44(C), pages 100-123.
    17. Helmut Lütkepohl, 2013. "Vector autoregressive models," Chapters, in: Nigar Hashimzade & Michael A. Thornton (ed.), Handbook of Research Methods and Applications in Empirical Macroeconomics, chapter 6, pages 139-164, Edward Elgar Publishing.
    18. Elbourne, Adam, 2008. "The UK housing market and the monetary policy transmission mechanism: An SVAR approach," Journal of Housing Economics, Elsevier, vol. 17(1), pages 65-87, March.
    19. Nicolas Legrand, 2019. "The Empirical Merit Of Structural Explanations Of Commodity Price Volatility: Review And Perspectives," Journal of Economic Surveys, Wiley Blackwell, vol. 33(2), pages 639-664, April.
    20. Michael Berlemann & Julia Freese, 2013. "Monetary policy and real estate prices: a disaggregated analysis for Switzerland," International Economics and Economic Policy, Springer, vol. 10(4), pages 469-490, December.
    21. Leonardo Quero-Virla, 2016. "Macroeconomic Effects of Oil Price Fluctuations in Colombia," Documentos de Trabajo de Valor Público 15647, Universidad EAFIT.

    More about this item

    Keywords

    Commodity prices; interest rates; exchange rates; VAR models;
    All these keywords.

    JEL classification:

    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bno:worpap:2008_12. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nbgovno.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.