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Monetary policy shocks and real commodity prices

Author

Listed:
  • Reicher Christopher Phillip

    (Kiel Institute for the World Economy, Hindenburgufer 66, 24105 Kiel, Germany)

  • Utlaut Johannes Friederich

    (Kiel Institute for the World Economy Advanced Studies Program, 2009–2010.)

Abstract

In this paper we document the effects of monetary policy shocks on real commodity prices. Based on a VAR estimated using long-run restrictions, an expansionary monetary policy shock causes real commodity prices and output both to rise sharply for a short period of time. We find that a simple dynamic equilibrium model of commodity supply and demand can give a realistic response of real commodity prices to monetary policy shocks, for a wide range of parameter values. Furthermore, we find that based on historical simulations, shocks to monetary policy played an important role in commodity price fluctuations during the Great Recession, but they have contributed negligibly to commodity price movements overall since 1970. Even though monetary policy shocks have a robust and large marginal effect on real commodity prices, most monetary policy shocks are small, and most fluctuations in real commodity prices are correspondingly small.

Suggested Citation

  • Reicher Christopher Phillip & Utlaut Johannes Friederich, 2013. "Monetary policy shocks and real commodity prices," The B.E. Journal of Macroeconomics, De Gruyter, vol. 13(1), pages 715-749, October.
    • Handle: RePEc:bpj:bejmac:v:13:y:2013:i:1:p:35:n:14
    DOI: 10.1515/bejm-2012-0083
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    More about this item

    Keywords

    commodity prices; long-run restrictions; monetary policy; overshooting; JEL Codes: E31; E52; E65; Q00;
    All these keywords.

    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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