Commodity Prices as Predictors of Aggregate Price Change

9 Pages Posted: 31 Oct 2012

See all articles by Roy H. Webb

Roy H. Webb

Federal Reserve Banks - Federal Reserve Bank of Richmond

Date Written: 1988

Abstract

Many analysts have advocated using commodity prices as a guide for monetary policy. The basic reasoning can be simply put: “Money creation is intended to promote price stability and is best guided by an index of prices set in real markets.” (Wall Street Journal, 1988). The rationale for stabilizing commodity prices can also be expressed in three propositions. First, inflation is a monetary phenomenon that should be eliminated. Second, commodity prices are determined in auction markets; they will therefore change quickly in response to monetary policy actions. Third, changes in commodity prices are good predictors of future aggregate price change. If all three propositions are accepted, then commodity prices might well be a useful guide for monetary policy, possibly serving as an intermediate target or at least as an important indicator variable.

Suggested Citation

Webb, Roy H., Commodity Prices as Predictors of Aggregate Price Change (1988). FRB Richmond Economic Review, vol. 74, no. 6, November/December 1988, pp. 3-11. Available at SSRN: https://ssrn.com/abstract=2122475

Roy H. Webb (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States
804-697-8208 (Phone)
804-697-8255 (Fax)

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