Commodity Prices as a Leading Indicator of Inflation

This paper studies the value of broad commodity price indexes as predictors of consumer price inflation in the G-7 industrial countries. After an introduction, the paper discusses the theoretical relationship between commodity and consumer prices and the conditions under which, in general, one would expect commodity prices to be a leading indicator of inflation. It then presents tests of the relationships between conventional broad indexes of commodity prices and consumer prices, and uses the data on individual commodities to generate the optimum weights in a commodity price index for forecasting G-7 inflation. We find that commodity and consumer prices are not co-integrated; the hypothesis that there is a reliable long-run relationship between the level of commodity prices and the level of consumer prices may be rejected. There is a tendency for changes in commodity prices to lead those in consumer prices, at least when the data are denominated in a broad index of major-country currencies. However, although the inclusion of commodity prices significantly improves the in-sample fit of regressions of an aggregate (multi-country) consumer price index, the results may not be sufficiently stable to improve post-sample forecasts. Estimated alternative commodity price indexes, in which the weights are chosen so as to minimize the residual variance in aggregate inflation regressions, track the behavior of the aggregate CPI reasonably well in-sample. However, the estimated indexes work only moderately well in post-sample predictions, and they do not appear to offer significant advantages over the conventional export weighted index. Perhaps the most important result is that turning points in commodity-price inflation frequently precede turning points in consumer-price inflation for the large industrial countries as a group.

Commodity Prices and Inflation: Evidence From Seven Large Industrial Countries

This paper examines the relationships between movements in primary commodity prices and changes in inflation in the large industrial countries. It begins by developing a two-country model in order to examine the theoretical effects of monetary, fiscal, and supply-side disturbances on commodity and manufactures prices and on exchange rates. It is shown that if monetary shocks dominate, then commodity prices should lead general price movements, and the level of commodity prices should be correlated with the general inflation rate. Non-monetary shocks generally weaken these relationships, but such disturbances may cancel out for broad indexes covering a wide range of commodities. Country-specific commodity price indexes are developed for the major industrial countries. The weights assigned to different commodities vary substantially across countries. Nonetheless, when the indexes are expressed in a common currency, they tend to be highly correlated over time, except when sharp movements occur in certain commodity prices. The major source of contrast across countries in the behavior of the indexes derives from exchange rate movements. Several empirical tests broadly support the conclusions of the theoretical model, with relatively few differences across countries. Three main tendencies may be cited. First, low inflation in industrial countries has tended to be associated with low levels of commodity prices, and conversely; commodity-price levels are cointegrated with consumer-price inflation rates. Second, there has been some tendency for movements in commodity prices to precede changes in general inflation rates by a few months, although it is not clear whether this tendency is strong enough to be a reliable aid in forecasting the rate of inflation. Third, there s a strong and fairly reliable tendency for turning points in general inflation rates. Commodity prices thus appear to contribute to predictions of turning points in inflation, predictions of inflation rates but more strongly to predictions of turning points in inflation.

Higher Spin Gravitational Couplings and the Yang--Mills Detour Complex

Gravitational interactions of higher spin fields are generically plagued by inconsistencies. We present a simple framework that couples higher spins to a broad class of gravitational backgrounds (including Ricci flat and Einstein) consistently at the classical level. The model is the simplest example of a Yang--Mills detour complex, which recently has been applied in the mathematical setting of conformal geometry. An analysis of asymptotic scattering states about the trivial field theory vacuum in the simplest version of the theory yields a rich spectrum marred by negative norm excitations. The result is a theory of a physical massless graviton, scalar field, and massive vector along with a degenerate pair of zero norm photon excitations. Coherent states of the unstable sector of the model do have positive norms, but their evolution is no longer unitary and their amplitudes grow with time. The model is of considerable interest for braneworld scenarios and ghost condensation models, and invariant theory.Comment: 19 pages LaTe

Lawrence E. Mitchell, Corporate Irresponsibility–America’s Newest Export

Why is corporate irresponsibility “America’s newest export?” Of the world’s 100 largest multinational corporations, forty-seven are headquartered within the European Union. Forty-six are headquartered in the United States. Is Professor Mitchell telling us that the Anglo-Dutch Unilever is more responsible than, say, Procter & Gamble? Is Total-Fina, the French petroleum giant, more responsible than Chevron-Texaco or Exxon-Mobil? After all, it is Total, and not the U.S.-based Unocal, that is the operator of the Myanmar pipeline with which Mitchell opens his book, as an example of corporate irresponsibility. International human rights organizations are suing on behalf of Myanmar citizens brutalized when Total and Unocal used the Burmese army as a subcontractor to provide security on the pipeline project