Commodity Prices: How Important are Real and Nominal Shocks?

24 Pages Posted: 26 Nov 2010

See all articles by Harry Bloch

Harry Bloch

Curtin University of Technology - Curtin Business School - School of Economics and Finance

Patricia Fraser

Curtin University of Technology - Curtin Business School - Bentley Campus; University of Aberdeen - Business School

Garry MacDonald

Curtin University - School of Economics and Finance

Date Written: January 15, 2009

Abstract

We consider the response of both nominal and real commodity prices on world markets to real and nominal shocks by hypothesizing that nominal shocks can permanently affect nominal commodity prices, but can have only temporary effect on real commodity prices. Real shocks, in contrast, can have permanent as well as temporary effects on both nominal and real commodity prices. When nominal and real shocks are decomposed in this manner, real shocks are found to be of much greater importance to the observed movements in commodity prices. Further, when the shocks are related to the rate of growth of world industrial production as an indicator of business cycle movements, the results suggest that the impact of the business cycle is self-stabilizing in that there is an initial positive effect on growth in commodity prices followed by a fully offsetting negative effect.

Keywords: commodity prices, shocks, industrial production, business cycle

Suggested Citation

Bloch, Harry and Fraser, Patricia and MacDonald, Garry, Commodity Prices: How Important are Real and Nominal Shocks? (January 15, 2009). CRAE Research Paper No. 200901. Available at SSRN: https://ssrn.com/abstract=1715322 or http://dx.doi.org/10.2139/ssrn.1715322

Harry Bloch (Contact Author)

Curtin University of Technology - Curtin Business School - School of Economics and Finance ( email )

Curtin University
GPO Box U 1987
Perth, 6845
Australia
+61 8 9266 2035 (Phone)
+61 8 9266 3026 (Fax)

Patricia Fraser

Curtin University of Technology - Curtin Business School - Bentley Campus ( email )

GPO Box U1987
Perth WA 6845
Australia

University of Aberdeen - Business School ( email )

Edward Wright Building
Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom

Garry MacDonald

Curtin University - School of Economics and Finance ( email )

GPO Box U 1987
Perth, Western Australia 6845
Australia
+61 892267724 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
43
Abstract Views
641
PlumX Metrics