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Option-implied expectations in commodity markets and monetary policy

Athanasios Triantafyllou and George Dotsis

Journal of International Money and Finance, 2017, vol. 77, issue C, 1-17

Abstract: In this paper we estimate the dynamic interactions between option-implied variance and skewness in agricultural commodity markets and monetary policy. Using a structural vector autoregressive (SVAR) framework, we find that an expansionary (contractionary) monetary policy upwardly (downwardly) revises commodity markets’ expectations about the price and volatility path of agricultural products. On the other hand, our empirical analysis reveals that monetary policy does not have a systematic and timely response to sudden changes in option implied expectations of commodity investors. In addition, we provide empirical evidence showing the robust forecasting power of agricultural option-implied information on monetary policy with R2 values reaching almost 52%.

Keywords: Monetary policy; Implied variance and skewness; Agricultural commodities (search for similar items in EconPapers)
JEL-codes: E4 G1 Q1 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:eee:jimfin:v:77:y:2017:i:c:p:1-17