Monetary Policy, Global Liquidity and Commodity Price Dynamics

This paper examines the interactions between money, interest rates, goods and commodity prices at a global level. For this purpose, we aggregate data for major OECD countries and follow the Johansen/Juselius cointegrated VAR approach. Our empirical model supports the view that, when controlling for interest rate changes and thus different monetary policy stances, money (defined as a global liquidity aggregate) is still a key factor to determine the long-run homogeneity of commodity prices and goods prices movements. The cointegrated VAR model fits with the data for the analysed period from the 1970s until 2008 very well. Our empirical results appear to be overall robust since they pass inter alia a series of recursive tests and are stable for varying compositions of the commodity indices. The empirical evidence is in line with theoretical considerations. The inclusion of commodity prices helps to identify a significant monetary transmission process from global liquidity to other macro variables such as goods prices. We find further support of the conjecture that monetary aggregates convey useful information about variables such as commodity prices which matter for aggregate demand and thus inflation. Given this clear empirical pattern it appears justified to argue that global liquidity merits attention in the same way as the worldwide level of interest rates received in the recent debate about the world savings and liquidity glut as one of the main drivers of the current financial crisis, if not possibly more.Commodity prices, cointegration, CVAR analysis, global liquidity, inflation, international spillovers

Monetary Policy, Global Liquidity and Commodity Price Dynamics

This paper examines the interactions between money, interest rates, goods and commodity prices at a global level. For this purpose, we aggregate data for major OECD countries and follow the Johansen/Juselius cointegrated VAR approach. Our empirical model supports the view that, when controlling for interest rate changes and thus different monetary policy stances, money (defi ned as a global liquidity aggregate) is still a key factor to determine the long-run homogeneity of commodity prices and goods prices movements. The cointegrated VAR model fi ts with the data for the analysed period from the 1970s until 2008 very well. Our empirical results appear to be overall robust since they pass inter alia a series of recursive tests and are stable for varying compositions of the commodity indices. The empirical evidence is in line with theoretical considerations. The inclusion of commodity prices helps to identify a signifi cant monetary transmission process from global liquidity to other macro variables such as goods prices. We fi nd further support of the conjecture that monetary aggregates convey useful information about variables such as commodity prices which matter for aggregate demand and thus infl ation. Given this clear empirical pattern it appears justifi ed to argue that global liquidity merits attention in the same way as the worldwide level of interest rates received in the recent debate about the world savings and liquidity glut as one of the main drivers of the current fi nancial crisis, if not possibly more.Commodity prices; cointegration; CVAR analysis; global liquidity; infl ation; international spillovers

Global Liquidity and Commodity Prices: A Cointegrated VAR Approach for OECD Countries

This paper examines the interactions between money, consumer prices and commodity prices at a global level from 1970 to 2008. Using aggregated data for major OECD countries and a cointegrating VAR framework, we are able to establish long run and short run relationships among these variables while the process is mainly driven by global liquidity. According to our empirical findings, different price elasticities in commodity and consumer goods markets can explain the recently observed overshooting of commodity over consumer prices. Although the sample period is rather long, recursive tests corroborate that our CVAR fits the data very well.Commodity prices, cointegration, CVAR analysis, global liquidity, inflation, international spillovers

Tax revenue performance and vulnerability in developing countries

This paper addresses vulnerability of revenue to external shocks using export composition to capture economic structure and differentiating countries according to income levels, resource endowments and political regimes. This gives a richer characterization than previous studies. Lower income countries are vulnerable to shocks, especially in terms of trade (associated with the greatest revenue loss): democratic regimes seem to be less vulnerable to revenue losses due to shocks than non-democracies whereas revenue in resource rich is more vulnerable to shocks (except natural disasters) than non-resource rich countries. We find a negative relationship between manufacturing exports and revenue in lower income countries

Effects of Global Liquidity on Commodity and Food Prices

This article investigates the relationship between global liquidity and commodity and food prices applying a global cointegrated vector-autoregressive model. We use different measures of global liquidity and various indices of commodity and food prices for the period 1980-2011. Our results support the hypothesis that there is a positive long-run relation between global liquidity and the development of food and commodity prices, and that food and commodity prices adjust significantly to this cointegrating relation. Global liquidity, in contrast, does not adjust, it drives the relationship

Global liquidity and commodity prices-a cointegrated VAR approach for OECD countries

This article examines the interactions between money, consumer prices and commodity prices at a global level from 1970 to 2008. Using aggregated data for major Organization for Economic Cooperation and Development (OECD) countries and a Cointegrating Vector Autoregression (CVAR) framework, we are able to establish long-run and short-run relationships among these variables while the process is mainly driven by global liquidity. According to our empirical findings, different price elasticities in commodity and consumer goods markets can explain the recently observed overshooting of commodity over consumer prices. Although the sample period is rather long, recursive tests corroborate that our CVAR fits the data very well.