Commodity prices, money and inflation

Frank Browne and David Cronin

No 738, Working Paper Series from European Central Bank

Abstract: The influence of commodity prices on consumer prices is usually seen as originating in commodity markets. We argue, however, that long run and short run relationships should exist between commodity prices, consumer prices and money and that the influence of commodity prices on consumer prices occurs through a money-driven overshooting of commodity prices being corrected over time. Using a cointegrating VAR framework and US data, our empirical findings are supportive of these relationships, with both commodity and consumer prices proportional to the money supply in the long run, commodity prices initially overshooting their new equilibrium values in response to a money supply shock, and the deviation of commodity prices from their equilibrium values having explanatory power for subsequent consumer price inflation. JEL Classification: E31, E51, E52

Keywords: impulse response analysis; overshooting; VECM (search for similar items in EconPapers)
Date: 2007-03
References: Add references at CitEc
Citations: View citations in EconPapers (47)

Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp738.pdf (application/pdf)

Related works:
Journal Article: Commodity prices, money and inflation (2010)
Working Paper: Commodity Prices, Money and Inflation (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:2007738

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().