 Monetary Policy and Commodity Prices: an endogenous analysis using an SVAR approachBorradores de Economia from Banco de la Republica de Colombia Abstract: This work analyzes the relationship between real interest rates and commodity prices. According to Frankel’s hypothesis (1986-2006): "low real interest rates lead to high real commodity prices". However, some empirical evidence suggests that commodity prices can predict monetary policy. In this way, there is an endogeneity between commodity prices and monetary policy. Using Frankel’s model we include a Taylor rule equation in this theoretical model, which let us analyze the endogeneity problem. In order to find empirical support of this model, we estimate SVAR and, using quarterly data from 1962:Q1 to 2009:Q1, we find that the overshooting of commodity prices to 1% increase of real interest rate can be a minimum of 2.86% and a maximum of 5.97% depending on the chosen model. The increase of real interest rate given a 1% increase in commodity prices is positive and significant but of small magnitude (0.20% - 0.05%). Keywords: Monetary Policy; Commodity Prices; SVAR models. (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bdr:borrec:610 Access Statistics for this paper More papers in Borradores de Economia from Banco de la Republica de Colombia Cra 7 # 14-78. Contact information at EDIRC. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.