Liquidity, monetary policy and the commodity futures market

Miruna-Daniela Ivan (), Chiara Banti and Neil Kellard ()
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Miruna-Daniela Ivan: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH
Neil Kellard: Essex Business School, University of Essex

No 1114, Bank of England working papers from Bank of England

Abstract: This paper explores a novel directional liquidity-based transmission channel of monetary policy, which explains the heterogeneity in the response of commodity future prices to monetary policy. Employing an event-study analysis with a high-frequency instrumental variable estimator, we find that the trading volume of our sample of commodity futures declines following FOMC announcements. Further, we find that more traded commodities are also more exposed to monetary policy surprises, suggesting a significant role for trading activity in the transmission of monetary policy shocks to commodity markets. Lastly, we show that the direction of the target rate change matters to this transmission mechanism of monetary policy.

Keywords: Monetary policy; monetary transmission; financial liquidity; commodity futures (search for similar items in EconPapers)
JEL-codes: E52 G12 G14 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2025-01-24
New Economics Papers: this item is included in nep-cba and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:1114

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