Commodity Prices and Inflation Expectations in the United States

27 Pages Posted: 10 May 2012

See all articles by Oya Celasun

Oya Celasun

International Monetary Fund (IMF) - Research Department

Roxana Mihet

New York University (NYU), Department of Economics, Students

Lev Ratnovski

International Monetary Fund; European Central Bank, Financial Research Division

Date Written: March 2012

Abstract

U.S. monetary policy can remain extraordinarily accommodative only if longer-term inflation expectations stay well-anchored, including in response to commodity price shocks. We find that oil price shocks have a statistically significant, but economically small impact on longer-term inflation compensation embedded in U.S. Treasury bonds. The estimated effect is larger for the post-crisis period, and robust to controlling for measures of liquidity risk premia. Oil price shocks are also correlated with the variance of longer-term inflation expectations in the University of Michigan Survey of Consumers in the post-crisis period. These results are not attributable to looser monetary policy - oil price increases were associated with expectations of a faster monetary tightening after the crisis. Overall, the findings are consistent with some impact of commodity prices on long-term inflation expectations and/or on inflation rate risk.

Keywords: Commodity prices, Agricultural prices, External shocks, Oil prices, Price increases, inflation, monetary policy, inflation rate, aggregate demand, treasury bonds, post-crisis period, nominal interest rates, price inflation, monetary fund, monetary economics

JEL Classification: E31, E37, E52, E58

Suggested Citation

Celasun, Oya and Mihet, Roxana and Ratnovski, Lev, Commodity Prices and Inflation Expectations in the United States (March 2012). IMF Working Paper No. 12/89, Available at SSRN: https://ssrn.com/abstract=2055587

Oya Celasun (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Roxana Mihet

New York University (NYU), Department of Economics, Students ( email )

New York, NY
United States

Lev Ratnovski

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

HOME PAGE: http://ratnovski.googlepages.com

European Central Bank, Financial Research Division

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