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Global Liquidity, Financialization and Commodity Price Inflation

Author

Listed:
  • Kumar Rishabh

    (Department of Economic and Policy Research, Reserve Bank of India, India)

  • Somnath Sharma

    (Department of Economic and Policy Research, Reserve Bank of India, India)

Abstract

This paper examines the effect of global liquidity and financialization on commodity price inflation. The novelty of the paper lies in exploiting recent advances in our understanding of global liquidity by separating private liquidity from official liquidity and digging into disaggregated level non-commercial commodity traders data. Private liquidity is found to be inflationary, while official liquidity is not. Among the non-commercial traders, both, active money managers and passive swap dealers seem to have played an important role in commodity inflation dynamics during the period 2006–2012. The paper also discusses emerging policy issues in a rapidly changing global commodities market.

Suggested Citation

  • Kumar Rishabh & Somnath Sharma, 2015. "Global Liquidity, Financialization and Commodity Price Inflation," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 6(02), pages 1-40.
    • Handle: RePEc:wsi:jicepx:v:06:y:2015:i:02:n:s179399331550012x
    DOI: 10.1142/S179399331550012X
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    References listed on IDEAS

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    1. Dées, Stéphane & Gasteuil, Audrey & Kaufmann, Robert K. & Mann, Michael, 2008. "Assessing the factors behind oil price changes," Working Paper Series 855, European Central Bank.
    2. Ansgar Belke & Ingo Bordon & Torben Hendricks, 2010. "Global liquidity and commodity prices-a cointegrated VAR approach for OECD countries," Applied Financial Economics, Taylor & Francis Journals, vol. 20(3), pages 227-242.
    3. Klaas Baks & Mr. Charles Frederick Kramer, 1999. "Global Liquidity and Asset Prices: Measurement, Implications, and Spillovers," IMF Working Papers 1999/168, International Monetary Fund.
    4. Mr. Reginald Darius, 2010. "Can Global Liquidity Forecast Asset Prices?," IMF Working Papers 2010/196, International Monetary Fund.
    5. Ke Tang & Wei Xiong, 2012. "Index Investment and the Financialization of Commodities," Financial Analysts Journal, Taylor & Francis Journals, vol. 68(6), pages 54-74, November.
    6. repec:zbw:rwirep:0102 is not listed on IDEAS
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    More about this item

    Keywords

    Commodity prices; speculation; global liquidity; official liquidity; private liquidity; money managers; E31; E50; G15; F40;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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