Monetary policy and world commodity markets: 2000-2007

Hossein Askari () and Noureddine Krichene ()
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Noureddine Krichene: International Monetary Fund, Washington (DC)

PSL Quarterly Review, 2010, vol. 63, issue 253, 145-177

Abstract: Expansionary monetary policy in key industrial countries and a rapidly depreciating US dollar sent commodity prices soaring at unprecedented rates during 2003–2007. In contrast, consumer price indices in major OECD countries, a leading indicator for monetary policy, showed almost no inflation. This twin development is a puzzle as the evolution of consumer prices were not responsive to record low interest rates, doubledigit commodity inflation, and a sharp depreciation of the dollar. A common trend, identified as a monetary shock, drives commodity prices. Policymakers face a policy dilemma: maintain expansionary monetary policy stance with persistent commodity price inflation, subsequent severe world recession, and financial disorder, or tighten monetary policy with subsequent sustained economic growth and financial and price stability.

Keywords: Monetary Policy; Asset Inflation; Commodity Prices (search for similar items in EconPapers)
JEL-codes: C10 C22 E31 E52 Q40 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (2)

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