Commodities and monetary policy: Implications for inflation and price level targeting

Donald Coletti, René Lalonde, Paul Masson, Dirk Muir and Stephen Snudden

Journal of Policy Modeling, 2021, vol. 43, issue 5, 982-999

Abstract: We examine the relative ability of inflation targeting and price level targeting monetary policy rules to minimize inflation variability and business cycle fluctuations in a commodity-exporting country for supply and demand shocks to global commodity markets. The macroeconomic consequences of oil and non-oil primary commodities differ and affect the relative merits of the alternative monetary policy frameworks. Particularly, the consumption of refined oil products and demand-driven commodity price movements induce highly persistent inflation pressures resulting in a significant deterioration of the inflation-output gap trade-off available to central banks. When such terms-of-trade shocks are prevalent, price level targeting is inferior to inflation targeting.

Keywords: Global economy; Monetary policy; Oil price; Open economy; Policy rule (search for similar items in EconPapers)
JEL-codes: E52 F41 Q43 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0161893821000508
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Commodities and Monetary Policy: Implications for Inflation and Price Level Targeting (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:43:y:2021:i:5:p:982-999

DOI: 10.1016/j.jpolmod.2021.02.013

Access Statistics for this article

Journal of Policy Modeling is currently edited by A. M. Costa

More articles in Journal of Policy Modeling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().