Volatility of commodity futures prices and market-implied inflation expectations

Lucjan Orlowski

Journal of International Financial Markets, Institutions and Money, 2017, vol. 51, issue C, 133-141

Abstract: This study examines intricate interplay between crude oil, copper and gold futures prices, and market-implied inflation expectations that are proxied by the breakeven inflation derived from the 5-year US Treasury Note yields. We perform the Bai-Perron multiple breakpoint tests, Bayesian VAR with impulse response functions and GARCH with GED parameterization tests on daily data for the sample period January 3, 2003 – March 26, 2015. The results show a strong causal impact of shocks in the breakeven inflation on West Texas Intermediate and Brent crude oil as well as copper futures prices, albeit to varied degrees during the examined sample period. At times of low market risk and highly liquid markets West Texas Intermediate and copper futures prices move in tandem with the 5-year breakeven inflation. Prices of Brent and gold futures move in the opposite direction to the market-implied inflation.

Keywords: Commodity futures prices; Breakeven inflation; Bayesian VAR; Bai-Perron multiple breakpoint regression; GARCH (search for similar items in EconPapers)
JEL-codes: C58 G13 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:51:y:2017:i:c:p:133-141

DOI: 10.1016/j.intfin.2017.10.002

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