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The impact of monetary liquidity on Chinese aluminum prices

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Listed:
  • Sun, Zesheng
  • Sun, Bianxia
  • Lin, Sharon X.

Abstract

By expanding Frankel and Rose's (2009) theoretical model to consider the interaction of commodity prices with both money liquidity and expectation formation, this paper empirically studies the long-run relationship and short-term dynamics between aluminum prices and money liquidity via Vector autoregressive (VAR) and Impulse Response Function methodologies. Our results show that: (1) a cointegration relationship between money liquidity and Chinese aluminum prices exists, and monetary liquidity positively significantly influences the price over long periods; (2) a structural change has been found during the 2008 Financial Crisis and the change of Chinese monetary policies; and (3) the negative impact of production capacity mechanism on aluminum prices coexists with the positive impact of financial asset returns mechanism, to allow for varied market expectations on aluminum prices within and outside China.

Suggested Citation

  • Sun, Zesheng & Sun, Bianxia & Lin, Sharon X., 2013. "The impact of monetary liquidity on Chinese aluminum prices," Resources Policy, Elsevier, vol. 38(4), pages 512-522.
    • Handle: RePEc:eee:jrpoli:v:38:y:2013:i:4:p:512-522
    DOI: 10.1016/j.resourpol.2013.08.002
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    References listed on IDEAS

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    Cited by:

    1. Klein, Tony & Todorova, Neda, 2021. "Night trading with futures in China: The case of Aluminum and Copper," Resources Policy, Elsevier, vol. 73(C).
    2. Shi, Wenming & Wang, Ganggang & Zhao, Xu & Feng, Xuehao & Wu, Jun, 2018. "Price determination in the electrolytic aluminum industry: The role of electricity prices," Resources Policy, Elsevier, vol. 59(C), pages 274-281.
    3. Juan Ignacio Guzmán & Enrique Silva, 2018. "Copper price determination: fundamentals versus non-fundamentals," Mineral Economics, Springer;Raw Materials Group (RMG);Luleå University of Technology, vol. 31(3), pages 283-300, October.
    4. Sun, Zesheng & Wang, Yaoqing & Zhou, Xu & Yang, Lunan, 2019. "The roundabout from interest rates to commodity prices in China: The role of money flow," Resources Policy, Elsevier, vol. 61(C), pages 627-642.
    5. Kakade, Kshitij Abhay & Mishra, Aswini Kumar, 2021. "The impact of macroeconomic and oil shocks on India’s non-ferrous metal prices: A structural-VAR approach," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 63, pages 30-50.
    6. Zesheng Sun & Bianxia Sun, 2017. "Impact of Monetary Supply on Chinese Nonferrous Metal Price Movement-super-," Asian Economic Journal, East Asian Economic Association, vol. 31(1), pages 17-37, March.

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    More about this item

    Keywords

    Money liquidity; Aluminum prices; Chinese aluminum market; Market volatility; JEL classification: E51; Q32;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development

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