Kiel Working Papers, Kiel Institute for World Economics
No 1704:
The effect of inflation on real commodity prices
Christopher Reicher and Johannes Utlaut
Abstract: Recent research has shown that economic conditions have an
important effect on real commodity prices. We quantify the contribution of
fluctuations in inflation to this particular link. In the data, a temporary
rise in inflation causes real commodity prices to rise, as does a rise in
trend inflation. We find that a simple dynamic equilibrium model of
commodity supply and demand gives a realistic response of real commodity
prices to inflation. Based on historical simulations, shocks to inflation
played an important role in commodity price dynamics during the 1970s, but
they have contributed negligibly to commodity price movements since then
Keywords: Commodity prices, monetary policy, inflation, the 1970s; (follow links to similar papers)
JEL-Codes: E31,; E52,; E65,; Q00; (follow links to similar papers)
47 pages, May 2011
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