Commodity Prices, Interest Rates and the Dollar

Arbeitspapier

We investigate whether a decline in real interest rates and the US dollar contribute to higher commodity prices, and whether commodity prices tend to display overshooting behavior in response to changes in especially real interest rates. We analyze the behavior of a broad range of real commodity prices, i.e. real prices of crude oil, food, metals and industrial raw materials. The analysis is based on structural VAR models estimated on quarterly data over the period 1990q1-2007q4. Our results suggest that commodity prices increase significantly in response to a reduction in real interest rates. Moreover, we find that oil prices as well as metal prices tend to display overshooting behavior in response to interest rate changes. The evidence also suggests that a decline in the dollar leads to a surge in commodity prices. Shocks to interest rates and the dollar are found to account for substantial shares of fluctuations in the commodity prices.

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• ISBN: 978-82-7553-449-9
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 2008/12

Classification and Topics

• Classification: Wirtschaft ; Prices, Business Fluctuations, and Cycles: Forecasting and Simulation: Models and Applications ; Money and Interest Rates: Forecasting and Simulation: Models and Applications ; Agriculture in International Trade ; Energy and the Macroeconomy
• Subject: VAR models ; commodity prices ; interest rates ; exchange rates

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Akram, Q. Farooq
• Event: Veröffentlichung
• (who): Norges Bank
• (where): Oslo
• (when): 2008

Further information

• Handle: http://hdl.handle.net/10419/209903