Commodity Price Volatility and U.S. Monetary Policy: Commodity Price Overshooting Revisited

27 Pages Posted: 9 Oct 2017

See all articles by Sima Siami-Namini

Sima Siami-Namini

Texas Tech University, College of Agricultural Sciences and Natural Resources, Department of Agricultural and Applied Economics

Darren Hudson

Texas Tech University

Alexandre Trindade

Texas Tech University - Department of Mathematics and Statistics

Date Written: October 9, 2017

Abstract

Commodity price volatility can create concern for central bank policy-makers. Recent commodity prices peaked in the aftermath of the financial crisis of 2007, and they have remained relatively volatile since. As they are often seen as being connected in a cause and effect relationship with inflation and real output, the driving forces behind commodity price volatility are crucial for the conduct of monetary policy (Svensson, 2005). Using an autoregressive moving average with an exponential generalized autoregressive conditional heteroscedastic (ARMA-EGARCH) process, we extract the conditional variance series to identify volatility spillovers between monetary policies and commodity price index. The findings show that the volatility of agricultural commodity price index and other commodities price indices overshoot their long-run equilibrium in response to an impulse in monetary policy.

Keywords: Monetary Policy, Commodity Prices, Overshooting Hypothesis, ARMA-EGARCH Model, VECM Approach

JEL Classification: C22, E52, O23, Q02

Suggested Citation

Siami-Namini, Sima and Hudson, Darren and Trindade, Alexandre, Commodity Price Volatility and U.S. Monetary Policy: Commodity Price Overshooting Revisited (October 9, 2017). Available at SSRN: https://ssrn.com/abstract=3049968 or http://dx.doi.org/10.2139/ssrn.3049968

Sima Siami-Namini (Contact Author)

Texas Tech University, College of Agricultural Sciences and Natural Resources, Department of Agricultural and Applied Economics ( email )

Box 42132
Lubbock, TX 79409-2132
United States

Darren Hudson

Texas Tech University ( email )

Box 42132
Lubbock, TX 79409-2132
United States

Alexandre Trindade

Texas Tech University - Department of Mathematics and Statistics ( email )

Lubbock, TX 79409-1042
United States

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