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Commodity Prices and Inflation Expectations in the United States

Oya Celasun, Lev Ratnovski () and Roxana Mihet ()

No 12/89, IMF Working Papers from International Monetary Fund

Abstract: U.S. monetary policy can remain extraordinarily accommodative only if longer-term inflation expectations stay well-anchored, including in response to commodity price shocks. We find that oil price shocks have a statistically significant, but economically small impact on longer-term inflation compensation embedded in U.S. Treasury bonds. The estimated effect is larger for the post-crisis period, and robust to controlling for measures of liquidity risk premia. Oil price shocks are also correlated with the variance of longer-term inflation expectations in the University of Michigan Survey of Consumers in the post-crisis period. These results are not attributable to looser monetary policy - oil price increases were associated with expectations of a faster monetary tightening after the crisis. Overall, the findings are consistent with some impact of commodity prices on long-term inflation expectations and/or on inflation rate risk.

Keywords: External shocks; Commodity prices; Central banks and their policies; Agricultural prices; Price increases; Oil prices; Inflation; Inflation expectations; Monetary policy; United States; inflation rate, aggregate demand, treasury bonds, Prices, Business Fluctuations, and Cycles: Forecasting and Simulation, (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-agr, nep-cba, nep-mac and nep-mon
Date: 2012-03-01
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