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Commodity prices and the US money supply in the long run

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  • Samih Antoine Azar

Abstract

Theoretically commodity prices are expected to overshoot the money supply in the short run but to vary with unit proportionality in the long run. This follows from the observation that consumer prices are sticky and that commodity prices, set in auction markets are fully flexible. There is empirical evidence in the literature that commodity indexes are indeed anchored in the long run to the money supply with unit proportionality. However there is a dearth of research on the long-run behaviour of individual commodities with respect to the money supply. This paper fills this gap in the literature. When 48 individual commodity series and six commodity indexes series are studied over the monthly period 1980/2011, there is fairly strong evidence for unit proportionality to money supply. Individual regressions and panel regressions are both supportive of unit proportionality. The preconception that commodity prices move haphazardly is hence rejected.

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  • Samih Antoine Azar, 2012. "Commodity prices and the US money supply in the long run," International Journal of Trade and Global Markets, Inderscience Enterprises Ltd, vol. 5(3/4), pages 316-335.
    • Handle: RePEc:ids:ijtrgm:v:5:y:2012:i:3/4:p:316-335
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    Cited by:

    1. Samih Antoine Azar, 2018. "Gold and US money demand," Economics and Business Letters, Oviedo University Press, vol. 7(3), pages 108-114.

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