An Empirical Investigation of the Nexus among Money Balances, Commodity Prices and Consumer Goods’ Prices

This paper aims to identify the nexus between the excess of liquidity in the United States and commodity prices over the 1983-2006 period. In particular, it assesses whether commodity prices react more powerfully than consumer goods' prices to changes in real money balances. Within a cointegrated vector autoregressive framework, the author investigates whether consumer prices and commodity prices react to excess liquidity, and if the different price elasticities of supply for goods and commodities allow for differences in the dynamic paths of price adjustment to a liquidity shock. The results show a positive relationship between real money and real commodity prices and provide empirical evidence for a stronger response of commodity prices with respect to consumer goods' prices. This could imply that, if the magnitude of the reaction is due the fact that consumer goods' prices are slower to react, then their long-run value can be predicted with the help of commodity prices. The findings support the view that the latter should be considered as a valid monetary indicator.

Bibliographic Details

Main Author:	Grigoli, Francesco
Language:	English
Published:	2011-01-01
Subjects:	AGRICULTURAL PRICES, AGRICULTURE, ARBITRAGE, ASSET PRICES, AUCTION, AUTOREGRESSION, COMMODITIES, COMMODITIES PRICES, COMMODITY, COMMODITY FUTURES, COMMODITY FUTURES PRICES, COMMODITY MARKET, COMMODITY MARKETS, COMMODITY PRICE, COMMODITY PRICE INDEX, COMMODITY PRICES, CONSUMER GOODS, CONSUMER PRICE, CONSUMER PRICE INDEX, CONSUMER PRICES, CONTINUOUS AUCTION, CYCLICAL SWINGS, DEVELOPING COUNTRIES, DEVELOPMENT POLICY, ECONOMETRIC ANALYSIS, ECONOMIC ACTIVITY, ECONOMIC OUTLOOK, ENERGY PRICES, EQUILIBRIUM, EQUILIBRIUM VALUE, EXCESS LIQUIDITY, EXCHANGE RATE, EXPANSIONARY MONETARY POLICY, EXPANSIONARY POLICY, FAIR, FINANCIAL SYSTEM, FOREIGN EXCHANGE, FUTURES, GDP, GLOBAL ECONOMY, GOVERNMENT BOND, GROSS DOMESTIC PRODUCT, INDUSTRIAL COMMODITIES, INDUSTRIAL ECONOMIES, INFLATION, INFLATION EXPECTATIONS, INFLATION RATE, INFLATION TARGETING, INFLATIONARY PRESSURES, INSPECTION, INTEREST RATE, INTEREST RATES, LIQUIDITY, M2, MACROECONOMICS, MONETARY AUTHORITY, MONETARY POLICY, MONEY GROWTH, MONEY SUPPLY, OPEN ACCESS, OUTPUT, PHONE, POLITICAL ECONOMY, POSITIVE EFFECTS, PRICE ADJUSTMENT, PRICE DYNAMICS, PRICE ELASTICITY, PRICE ELASTICITY OF SUPPLY, PRICE INCREASE, PRICE INCREASES, PRICE INDEX, PRICE INDEXES, PRICE LEVEL, PRICE MOVEMENTS, PRICES INDEX, PRIMARY COMMODITY, REAL GDP, RESULT, RESULTS, SPOT PRICE, SPREAD, SUBSTITUTES, SUPPLY SHOCK, SUPPLY SHOCKS, TRANSACTION, TRANSACTION COSTS, TREASURY, TREASURY BILL, VOLATILITY, WEB,
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110118101618 https://hdl.handle.net/10986/3306
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