FFA Working Papers 4:008 (2022)1028

ECB monetary policy and commodity prices

Shahriyar Aliev, Ev¾en Kočenda
Institute of Economic Studies, Charles University
Department of Banking and Insurance, Faculty of Finance and Accounting, Prague University of Economics and Business

We assess the impact of ECB monetary policy on global aggregate and sectoral commodity prices over 2001–2019. We employ a SVAR model and separately assess periods before and after the global financial crisis. Our key results indicate that contractionary monetary policy shocks have positive effects on commodity prices during both conventional and unconventional monetary policy periods, indicating the effectiveness of unconventional monetary policy tools. The largest impact is documented on fuel and food commodities. Our results also suggest that the effect of ECB monetary policy on commodity prices transmits through the exchange rate channel, which influences European market demand.

Keywords: European Central Bank, commodity prices, short-term interest rates, M2 stock, monetary aggregate, unconventional monetary policy, Structural Vector Autoregressive model, exchange rates
JEL classification: C54, E43, E58, F31, G15, Q02

Received: June 21, 2022; Revised: June 21, 2022; Accepted: June 24, 2022; Published online: February 21, 2022  Show citation

ACS AIP APA ASA Harvard Chicago Chicago Notes IEEE ISO690 MLA NLM Turabian Vancouver
Aliev, S., & Kočenda, E. (2022). ECB monetary policy and commodity prices. FFA Working Papers, 4, Article 2022.008. https://doi.org/10.XXXX/xxx.2022.008
Download citation
  • BibTeX (.bib)
  • Bookends (.ris)
  • EasyBib (.ris)
  • EndNote (.enw)
  • EndNote 8 (.xml)
  • ISI WoS (.isi)
  • Medlars (.medlars)
  • Mendeley (.ris)
  • MODS (.xml)
  • Papers (.ris)
  • RefWorks (.txt)
  • RefManager (.ris)
  • RIS (.ris)
  • MS Word (.xml)
  • Zotero (.ris)
    • Open full article

    References

    1. Aizenman, J., Cheung, Y. W., and Qian, X., 2020. The currency composition of international reserves, demand for international reserves, and global safe assets. Journal of International Money and Finance 102, 102120. Go to original source...
    2. Akram, Q.F., 2009. Commodity prices, interest rates and the dollar. Energy Economics. 31, 838-851. Go to original source...
    3. Ambler, S., Rumler F., 2019. The effectiveness of unconventional monetary policy announcements in the euro area: An event and econometric study. Journal of International Money and Finance 94. 48-61 Go to original source...
    4. Angell, W. D., 1992. Commodity prices and monetary policy: What have we learned? Cato Journal 12(1), 185-192.
    5. Anzuini, A., Lombardi, M.J., Pagano, P., 2013. The impact of monetary policy shocks on commodity prices. International Journal of Central Banking 9, 119-144. Go to original source...
    6. Aoki, K., 2001. Optimal monetary policy responses to relative-price changes. Journal of Monetary Economics 48(1), 55-80 Go to original source...
    7. Barigozzi, M., Lippi M., and Luciani, M., 2021. Large-dimensional Dynamic Factor Models: Estimation of Impulse-Response Functions with I(1) cointegrated factors. Journal of Econometrics 221, 455-482 Go to original source...
    8. Beckmann, J., Belke, A., Czudaj, R., 2014. Does global liquidity drive commodity prices? Journal of Banking and Finance 48, 224-234. Go to original source...
    9. Belke, A., Bordon, I.G., Volz, U., 2013. Effects of global liquidity on commodity and food prices. World Development 44, 31-43. Go to original source...
    10. Belke, A., Orth, W., Setzer, R., 2010. Liquidity and the dynamic pattern of asset price adjustment: A global view. Journal of Banking and Finance 34(8), 1933-1945. Go to original source...
    11. Belke, A.H., Bordon, I.G., Hendricks, T.W., 2014. Monetary policy, global liquidity and commodity price dynamics. The North American Journal of Economics and Finance 28, 1-16. Go to original source...
    12. Benecka, S., Fadejeva, L., and Feldkircher, M., 2020. The impact of euro Area monetary policy on Central and Eastern Europe. Journal of Policy Modeling 42(6). 1310-1330. Go to original source...
    13. Bernanke, B., Gertler, M., Watson, M., Sims, C., and Friedman, B., 1997. Systematic Monetary Policy and the Effects of Oil Price Shocks. Brookings Papers on Economic Activity, 91-157. Go to original source...
    14. Bernanke, B. S., and Gertler, M., 2000. Monetary Policy and Asset Price Volatility. NBER Working Paper No. 7559. Go to original source...
    15. Bernanke, B. S., Bovian, J., and Eliasz, P., 2005. Measuring the effects of monetary policy: A factoraugmented vector autoregressive (FAVAR) approach. The Quarterly Journal of Economics, 120, 387-422. Go to original source...
    16. Bluwstein, K., and Canova, F., 2018. Beggar-thy-neighbor? The international effects of ECB unconventional monetary policy measures. International J. of Central Banking 45, 69-120.
    17. Borio, C., and Disyatat, P., 2010. Unconventional monetary policies: an appraisal. The Manchester School 78. 53-89. Go to original source...
    18. Borio, C., and Zabai, A., 2018. Unconventional monetary policies: a re-appraisal. In Research Handbook on Central Banking. Edward Elgar Publishing. Go to original source...
    19. Brana, S., Djigbenou, M.L., and Prat, S., 2012. Global excess liquidity and asset prices in emerging countries: a PVAR approach. Emerging Markets Review 13, 256-267. Go to original source...
    20. Browne, F., Cronin, D., 2007. Commodity prices, money and inflation. ECB WP No. 738. Go to original source...
    21. Browne, F., Cronin, D., 2010. Commodity prices, money and inflation. Journal of Economics and Business 62, 331-345. Go to original source...
    22. Cecioni, M., 2017. ECB monetary policy and the euro exchange rate. Working papers 1172. Bank of Italy. Go to original source...
    23. Chen, Q., Filardo, A., He, D., and Zhu, F., 2016. Financial crisis, US unconventional monetary policy and international spillovers. Journal of International Money and Finance 67, 62-81. Go to original source...
    24. Chen, Y. C., Rogoff, K. S., and Rossi, B., 2010. Can exchange rates forecast commodity prices? Quarterly Journal of Economics, 125(3), 1145-1194. Go to original source...
    25. Chen, Q., Lombardi, M., Ross, A., & Zhu, F. 2017. Global impact of us and euro area unconventional monetary policies: A comparison. Working Papers 610, Bank of International Settlements.
    26. Caraiani, P., and Calin, A.C., 2020. Housing markets, monetary policy, and the international co-movement of housing bubbles. Review of International Economics 28, 365- 375. Go to original source...
    27. Cohen, Benjamin J. 1998. The Geography of Money. Ithaca: Cornell University Press.
    28. Cover, J.P., and Mallick, S.K., 2012. Identifying sources of macroeconomic and exchange rate fluctuations in the UK. Journal of International Money and Finance 31 (6), 1627-1648. Go to original source...
    29. Devereux, M.B., and Smith, G.W., 2021. Testing the present-value model of the exchange rate with commodity currencies. Journal of Money, Credit and Banking, 53, 589-596. Go to original source...
    30. Dieppe, A., Georgiadis, G., Ricci, M., Robays, I.V., and Roye, B., 2018. ECB-Global: Introducing the ECB's global macroeconomic model for spillover analysis. Economic Modelling 72. 78-98 Go to original source...
    31. Dornbusch, R., 1976. Expectations and exchange rate dynamics. Journal of Political Economy 84, 1161-1176. Go to original source...
    32. Dungey, M., and Fry, R., 2009. The identification of fiscal and monetary policy in a structural VAR. Economic Modelling 26. 1147-1160. Go to original source...
    33. Durlauf, S.N and Philipps, P.C.B., 1988. Trends versus random walks in time series analysis. Econometrica, 56. 1333-1354. Go to original source...
    34. Égert, B., and Kočenda, E., 2014. The impact of macro news and central bank communication on emerging European forex markets. Economic Systems 38(1), 73-88. Go to original source...
    35. Engle, R. F., and Granger., C.W.J., 1987. Co-Integration and Error-Correction: Representation, Estimation and Testing. Econometrica 55, 251-276. Go to original source...
    36. Fanchon, P., and Wendel, J., 1992. Estimating VAR models under non-stationarity and cointegration: alternative approaches for forecasting cattle prices. Journal of Applied Economics 24. 207-217. Go to original source...
    37. Ferrari, M., Kearns, J., and Schrimpf, A., 2021. Monetary policy's rising FX impact in the era of ultra-low rates. Journal of Banking and Finance 129, 1-13. Go to original source...
    38. Filardo, A., and M. Lombardi. 2014. Has Asian emerging market monetary policy been too procyclical when responding to swings in commodity prices? BIS Papers 77 (March): 129-53.
    39. Filardo, A. J., Lombardi, M. J., Montoro, C., and Ferrari, M. M., 2020. Monetary policy, commodity prices, and misdiagnosis risk. International Journal of Central Banking 62, 45-79.
    40. Frankel, J.A., 1986. Expectations and commodity price dynamics: the overshooting model. American Journal of Agricultural Economics 68, 344-348. Go to original source...
    41. Frankel, J.A., 2008. The effect of monetary policy on real commodity prices. In: Campbell, J.Y. (Ed.), Asset Prices and Monetary Policy. University of Chicago Press, Chicago, IL, 291-333. Go to original source...
    42. Galariotis, E., Makrichoriti, P., and Spyrou, S., 2018. The impact of conventional and unconventional monetary policy on expectations and sentiment, Journal of Banking and Finance 86, 1-20. Go to original source...
    43. Georgiadis, G., 2015. Examining asymmetries in the transmission of monetary policy in the euro area: Evidence from a mixed cross-section global VAR model. European Economic Review 75, 195-215. Go to original source...
    44. Gruber, J., and Vigfusson, R., 2018. Interest rates and the volatility and correlation of commodity prices. Macroeconomic Dynamics 22(3), 600-619. Go to original source...
    45. Hafemann, L., and Tillmann, P., 2017. The aggregate and country-specific effectiveness of ECB policy: evidence from an external instruments (VAR) approach. European Commission. Discussion Paper 063. Brussels. 40
    46. Haitsma, R., Unalmis, D., and de Haan, J., 2016. The impact of the ECB's conventional and unconventional monetary policies on stock markets. Journal of Macroeconomics 48, 101-116. Go to original source...
    47. Hįjek, J., and Horvįth, R., 2018. International spillovers of (un)conventional monetary policy: the effect of the ECB and the US Fed on non-Euro EU countries. Economic Systems 42 (1), 91-105 Go to original source...
    48. Hammoudeh, S., Nguyen, D.K., and Sousa, R.M., 2015. US monetary policy and sectoral commodity prices. Journal of International Money and Finance 57(C), 61-85. Go to original source...
    49. Hanabusa, K., 2017. Japan's quantitative monetary easing policy: Effect on the level and volatility of yield spreads. Journal of Asian Economics 53. 56-66. Go to original source...
    50. Hua, P., 1998. On primary commodity prices. The impact of macroeconomic and monetary shocks. Journal of Policy Modeling 20 (6), 767-790. Go to original source...
    51. Imbierowicz, B., Löffler, A., and Vogel, U., 2021. The transmission of bank capital requirements and monetary policy to bank lending in Germany. Review of International Economics, 29. 144- 164. Go to original source...
    52. Inoue, A., and Rossi, B., 2019. The effects of conventional and unconventional monetary policy on Exchange rates. Journal of International Economics 118, 419-447. Go to original source...
    53. Inoue, A., Jin, L., and Rossi, B., 2017. Rolling window selection for out-of-sample forecasting with timevarying parameters. Journal of Econometrics 196(1): 55-67. Go to original source...
    54. Jacks, D.S., O'Rourke, K.H., and Williamson, J.G., 2011. Commodity price volatility and world market integration since 1700. Review of Economics and Statistics, 93(3): 800-813 Go to original source...
    55. Jawadi, F., Sousa, R., and Traverso, R., 2017. On the macroeconomic and wealth effects of unconventional monetary policy. Macroeconomic Dynamics 21(5), 1189-1204. Go to original source...
    56. Kang, H., Yu, B.-K. and Yu, J., 2016. Global liquidity and commodity prices. Review of International Economics, 24, 20-36. Go to original source...
    57. Kearns, J., and Manners, P., 2006. The impact of monetary policy on the exchange rate: a study using intraday data. International Journal of Central Banking 2(4), 157-183.
    58. Klotz, P., Lin, T.C., and Hsu, S., 2014. Global commodity prices, economic activity and monetary policy: The relevance of China. Resources Policy 42(C), 1-9. Go to original source...
    59. Kočenda, E., Hanousek, J., Engelmann, D., 2008. Currencies, Competition, and Clans. Journal of Policy Modeling, 30(6), 1115-1132. Go to original source...
    60. Kočenda, E., and Moravcovį, M., 2019. Exchange rate comovements, hedging and volatility spillovers on new EU forex markets. Journal of International Financial Markets, Institutions and Money 58(C), 42-64. Go to original source...
    61. Krippner, L., 2013. A tractable framework for zero lower bound Gaussian term structure models. Reserve Bank of New Zealand Discussion Paper Series, DP 2013/02. Go to original source...
    62. Kucharcukova, O.B., Claeys, P, and Vasicek, B., 2016. Spillover of the ECB's monetary policy outside the euro area: How different is conventional from unconventional policy? Journal of Policy Modeling 38. 199-225 Go to original source...
    63. Mamatzakis, E., and Bermpei, T., 2016. What is the effect of unconventional monetary policy on bank performance? Journal of International Money and Finance 67. 239-263 Go to original source...
    64. McMahon, M., Peiris, M.U., and Polemarchakis, H., 2018. Perils of unconventional monetary policy. Journal of Economic Dynamics and Control 93. 92-114 Go to original source...
    65. Meinusch, A., Tillmann, P., 2016. The macroeconomic impact of unconventional monetary policy shocks. Journal of Macroeconomics 47, 58-67 Go to original source...
    66. Mishkin, F.S., 2001. The Transmission Mechanism and the Role of Asset Prices in Monetary Policy. NBER Working Paper No. 8617. Go to original source...
    67. Naka, A., and Tufte, D. 1997 Examining impulse response functions in cointegrated systems. Applied Economics, 29(12), 1593-1603 Go to original source...
    68. Narayan, P.K., and Sharma, S.S., 2018. An analysis of time-varying commodity market price discovery. International Review of Financial Analysis 57, 122-133 Go to original source...
    69. Ono, M., 2017. Inflation, expectation, and the real economy in Japan. Journal of Japanese International Economies 45, 13-26 Go to original source...
    70. Pindyck, R.S., and Rotemberg, J.J., 1990. The excess co-movement of commodity prices. Economic Journal 100, 1173-1189. Go to original source...
    71. Ratti, R.A., and Vespignani, J.L., 2015. Commodity prices and BRIC and G3 liquidity: a SFAVEC approach. Journal of Banking and Finance 53, 18-33. Go to original source...
    72. Ricci, O., 2015. The impact of monetary policy announcements on the stock price of large European banks during the financial crisis. Journal of Banking and Finance 52, 245-255. Go to original source...
    73. Phillips, P., and Durlauf, S., 1986. Multiple Time Series Regression with Integrated Processes. The Review of Economic Studies, 53(4), 473-495. Go to original source...
    74. Phillips,P. C. B. 1991. Optimal inference in cointegrated systems. Econometrica 59, 283-306. Go to original source...
    75. Potjagailo, G., 2017. Spillover effects from Euro area monetary policy across Europe: A factor-augmented VAR approach. Journal of International Money and Finance 72, 127-147. Go to original source...
    76. Prüser, J. and Schlösser, A. (2020), On the Time-Varying Effects of Economic Policy Uncertainty on the US Economy. Oxf Bull Econ Stat, 82, 1217-1237. Go to original source...
    77. Schenkelberg, H., and Watzka, S., 2013. Real effects of quantitative easing at the zero lower bound: structural VAR-based evidence from Japan. J. International Money and Finance 33, 327-357. Go to original source...
    78. Scrimgeour, D., 2014. Commodity price responses to monetary policy surprises. American Journal of Agricultural Economics 97 (1), 88-102 Go to original source...
    79. Sims, C. A., Stock H.J, and Watson, M.W., 1990, Inference in linear time series models with some unit roots. Econometrica 58, 113-144. Go to original source...
    80. Sims, C.A., 1980. Macroeconomics and Reality. Econometrica 48, 1-48. Go to original source...
    81. Sims, C.A., 1992. Interpreting the macroeconomic time series facts: The effects of monetary policy. European Economic Review 36 (5), 975-1000. Go to original source...
    82. Sims, C.A., and Zha, T., 2006. Does monetary policy generate recessions? Macroeconomic Dynamics 10(2), 231-272. Go to original source...
    83. Smiech, S., Papiez, M., and Dabrowski, M.A., 2015. Does the euro area macroeconomy affect global commodity prices? Evidence from a SVAR approach. International Review of Economics and Finance 39. 485-503 Go to original source...
    84. Sousa, R.M., 2010. Housing wealth, financial wealth, money demand and policy rule: evidence from the euro area. The North American Journal of Economics and Finance 21, 88-105. Go to original source...
    85. Stock, J. H., 1987. Asymptotic Properties of Least Squares Estimators of Cointegrating Vectors. Econometrica 55, 1035-1056. Go to original source...
    86. Sun, Z., Wang, Y., Zhou, X., and Yang, L., 2019. The roundabout from interest rates to commodity prices in China: The role of money flow. Resources Policy 61(C), 627-642. Go to original source...
    87. Toda, H.Y., and Yamamoto, T., 1995. Statistical inference in vector autoregressions with possibly integrated processes. Journal of Econometrics 66. 225-250. Go to original source...
    88. West, K. D., 1988. Asymptotic Normality, When Regressors Have a Unit Root. Econometrica 56, 1397-1418. Go to original source...
    89. Wu, J.C., and Xia, F.D., 2016. Measuring the macroeconomic impact of monetary policy at the zero lower bound. Journal of Money, Credit and Banking 48 (2-3), 253-291. Go to original source...
    90. Yang, Y., and Zhang, J., 2021. Effects of monetary policy on the exchange rates: A time-varying analysis. Finance Research Letters. Article in press. Go to original source...

    Return to the content