Primary commodity prices and macroeconomic variables: a long run relationship

Theodosios Palaskas and Panos Varangis

No 314, Policy Research Working Paper Series from The World Bank

Abstract: In recent years, fluctuations in such macroeconomic variables as interest rates and exchange rates appear to have significantly affected primary commodity prices. This paper studies the relationship between commodity prices and various macroeconomic variables. It focuses particularly on interest rates because of the important role they play in the portfolio adjustment model, in which investors move between commodities, bonds and money as interest rates change. The paper concludes that there is a long run quantifiable relationship between real interest rates and real commodity prices, but not between real commodity prices and either consumer prices or the money supply. Commodity prices in nominal terms strongly affect consumer prices but not the reverse - and some groups of commodity prices can be reliable indicators of movements in consumer prices. Changes in the money supply affect commodity prices, but not the reverse, and the relationship is not quantifiable.

Keywords: Social Analysis; Quality of Life & Leisure; National Governance; Government Policies; International Trade and Trade Rules; Youth and Governance; Inflation; Crime and Society; Commodity Risk Management (search for similar items in EconPapers)
Date: 1989-11-30
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:314

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