Financialization of Commodities and the Monetary Transmission Mechanism

Ted P. Schmidt

International Journal of Political Economy, 2017, vol. 46, issue 2-3, 128-149

Abstract: Institutional change and deregulation laid the groundwork for financialization of the U.S. commodity futures markets. Financial innovations allowed investors, through Wall Street banks, to circumvent position limit regulations so that financial traders now dominate futures markets and the price discovery process. As an asset class, prices of commodities now behave like the price of any asset: They are more volatile and subject to periodic bubbles. Financialization of commodity markets suggests the possibility of a more direct transmission mechanism from monetary policy to measured inflation. The Federal Reserve’s policy of Quantitative Easing announced in November 2010 provides an operative example of this mechanism.

Date: 2017
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DOI: 10.1080/08911916.2017.1383699

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