Does Monetary Policy Respond to Commodity Price Shocks?

Kuhanathan Ano Sujithan, Sanvi Avouyi-Dovi and Lyes Koliai
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Kuhanathan Ano Sujithan: LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique
Lyes Koliai: LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique

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Abstract: Commodity prices, especially oil prices, peaked in the aftermath of the financial crisis of 2007 and they have remained highly volatile. All things being equal, the increase in commodity prices may induce a similar tendency of inflation and hence become a monetary policy issue. However, the impact of the changes of commodity prices on inflation is not clear. In this paper, by using Markov-switching models we show that there is an implicit impact of commodity markets on short-term interest rates for a set of heterogeneous countries (the U.S., the Euro area, Brazil, India, Russia and South Africa) over the period from January 1999 to August 2012. Besides, the VAR models reveal that short-term interest rates respond to commodity volatility shocks whatever the country. Moreover, the linkage between commodity markets and monetary policy instruments is stronger since the recent financial crisis.

Keywords: Markov - switching; Commodity prices; VAR models; Monetary Policy (search for similar items in EconPapers)
Date: 2013-06
Note: View the original document on HAL open archive server: https://hal.science/hal-01511915v1
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Published in 62nd annual meeting of the AFSE, Jun 2013, Marseille, France. pp.52

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