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Global commodity prices and macroeconomic fluctuations in a low interest rate environment

Rashad Ahmed

Energy Economics, 2023, vol. 127, issue PB

Abstract: This paper takes a multi-country perspective to investigate the macroeconomic consequences of recessionary demand shocks when interest rates are low. Global demand shocks are recovered from a global commodity price factor that is shown to be highly representative of global demand conditions. Country-specific adjustments to these global commodity-based demand shocks are then estimated across 17 advanced economies using non-linear VARs. Domestic real GDP growth, equity returns, and inflation are significantly more sensitive to these shocks when nominal interest rates fall below a threshold of about 3%. When interest rates are low, recessionary commodity demand shocks lead to higher domestic real interest rates as nominal policy rates become constrained by the zero lower bound, consistent with a deflation trap driving the increase in domestic sensitivity to global shocks.

Keywords: Zero lower bound; Commodities; Monetary policy; Business cycles (search for similar items in EconPapers)
JEL-codes: E30 E44 E52 F44 Q43 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:127:y:2023:i:pb:s0140988323006126

DOI: 10.1016/j.eneco.2023.107114

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