Commodity Prices and Inflation Expectations in the United States

Oya Celasun, Lev Ratnovski () and Roxana Mihet

No 2012/089, IMF Working Papers from International Monetary Fund

Abstract: U.S. monetary policy can remain extraordinarily accommodative only if longer-term inflation expectations stay well-anchored, including in response to commodity price shocks. We find that oil price shocks have a statistically significant, but economically small impact on longer-term inflation compensation embedded in U.S. Treasury bonds. The estimated effect is larger for the post-crisis period, and robust to controlling for measures of liquidity risk premia. Oil price shocks are also correlated with the variance of longer-term inflation expectations in the University of Michigan Survey of Consumers in the post-crisis period. These results are not attributable to looser monetary policy - oil price increases were associated with expectations of a faster monetary tightening after the crisis. Overall, the findings are consistent with some impact of commodity prices on long-term inflation expectations and/or on inflation rate risk.

Keywords: WP; price shock; commodity price; nominal exchange rate; risk premium; Inflation expectations; commodity prices; inflation compensation; sustained commodity price rally; C. commodity price; food price rise; commodity food price; oil price inflation; A. commodity price; oil price change; food commodity price shock; food price inflation; Inflation; Oil prices; Commodity price shocks; Food prices; Global (search for similar items in EconPapers)
Pages: 25
Date: 2012-03-01
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Citations: View citations in EconPapers (9)

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