The Impact of Federal Reserve Monetary Policy on Commodity Prices: Evidence from the U.S. Dollar Index and International Grain Futures and Spot Markets

Xuezhen Ba, Xizhao Wang and Yu Zhong ()
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Xuezhen Ba: Institute of Agricultural Economics and Development, Chinese Academy of Agricultural Sciences, Beijing 100081, China
Xizhao Wang: Institute of Agricultural Economics and Development, Chinese Academy of Agricultural Sciences, Beijing 100081, China
Yu Zhong: Institute of Agricultural Economics and Development, Chinese Academy of Agricultural Sciences, Beijing 100081, China

Agriculture, 2025, vol. 15, issue 9, 1-24

Abstract: There is a strong connection between the Federal Reserve’s monetary policy and the trend of international food prices. Employing the average information share model, EGARCH(Exponential Generalized Autoregressive Conditional Heteroskedasticity), and DCC-MGARCH(Dynamic Conditional Correlation-Multivariate Generalized Autoregressive Conditional Heteroskedasticity) models, this study investigates the relationship between the U.S. dollar index, international grain futures prices, and spot prices in the context of Federal Reserve monetary policy adjustments from 2000 to 2023. The findings reveal that, first, under conditions of long-run cointegration, the U.S. dollar index exerts a strong pricing influence over international grain futures, while grain futures demonstrate a significant price discovery function over spot prices. Second, both international grain futures and spot markets exhibit asymmetric volatility, with price increases being more pronounced than decreases in response to external shocks. Additionally, the U.S. dollar index has a unidirectional and inverse influence on grain futures prices, while futures and spot prices interact bidirectionally and move in the same direction. This paper contributes to understanding the impact of Federal Reserve monetary policy adjustments on international food prices and offers policy insights for countries to manage food import risks and maintain price stability.

Keywords: dollar index; international food prices; price discovery (search for similar items in EconPapers)
JEL-codes: Q1 Q10 Q11 Q12 Q13 Q14 Q15 Q16 Q17 Q18 (search for similar items in EconPapers)
Date: 2025
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