The informational role of commodity prices in formulating monetary policy: a reexamination under the frequency domain

Yanfeng Wei ()

Empirical Economics, 2015, vol. 49, issue 2, 537-549

Abstract: This paper employs the frequency domain causality test proposed by Breitung and Candelon (J Econom 132:363–378, 2006 ) to investigate whether commodity prices are useful in formulating monetary policy. Based on the monthly U.S. data from January 1957 to December 2011, we find the frequency domain causal relationship between non-oil commodity prices and economic activities (e.g., consumer prices and industrial production) has changed dramatically over time. Our results indicate that the non-oil commodity prices are useful in setting monetary policy in the 1970s and the beginning of 1980s, but the usefulness has disappeared completely since the early 1980s. In contrast, the oil price or the commodity price index including oil price can still be used as an informational variable for managing monetary policy after the early 1980s. Copyright Springer-Verlag Berlin Heidelberg 2015

Keywords: Commodity prices; Predictive power; Frequency domain causality; C32; E31 (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1007/s00181-014-0870-2

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