TY  - JOUR
AU  - Frankel, Jeffrey A
TI  - The Effect of Monetary Policy on Real Commodity Prices
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12713
PY  - 2006
Y2  - December 2006
DO  - 10.3386/w12713
UR  - http://www.nber.org/papers/w12713
L1  - http://www.nber.org/papers/w12713.pdf
N1  - Author contact info:
Jeffrey A. Frankel
Harvard Kennedy School
79 JFK Street
Cambridge, MA 02138
Tel: 617/496-3834
Fax: 617/496-5747
E-Mail: jeffrey_frankel@harvard.edu
M1  - published as Jeffrey A. Frankel. "The Effect of Monetary Policy on Real Commodity Prices," in John Y. Campbell, editor, "Asset Prices and Monetary Policy" University of Chicago Press (2008)

AB  - Commodity prices are back.  This paper looks at connections between monetary policy, and agricultural and mineral commodities.  We begin with the monetary influences on commodity prices, first for a large country such as the United States, then smaller countries.  The claim is that low real interest rates lead to high real commodity prices.  The theory is an analogy with Dornbusch overshooting.  The relationship between real interest rates and real commodity prices is also supported empirically.  One channel through which this effect is accomplished is a negative effect of interest rates on the desire to carry commodity inventories.  The paper concludes with a consideration of implications for monetary policy.
ER  -