Commodity Prices and Inflation Expectations in the United States

By Oya Celasun, Lev Ratnovski, Roxana Mihet

March 1, 2012

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Oya Celasun, Lev Ratnovski, and Roxana Mihet. Commodity Prices and Inflation Expectations in the United States, (USA: International Monetary Fund, 2012) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Commodity price shocks, Commodity prices, Food prices, Inflation, Oil prices, Prices

Keywords: A. commodity price, C. commodity price, Commodity food price, Commodity price, Commodity price shocks, Commodity prices, Food commodity price shock, Food price inflation, Food price rise, Food prices, Global, Inflation, Inflation compensation, Inflation expectations, Nominal exchange rate, Oil price change, Oil price inflation, Oil prices, Price shock, Risk premium, Sustained commodity price rally, WP

Publication Details

Pages:

25
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/089
Stock No:

WPIEA2012089
ISBN:

9781475502633
ISSN:

1018-5941

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