Commodity Prices and Inflation Expectations in the United States

Author/Editor: Oya Celasun ; Lev Ratnovski ; Roxana Mihet
Publication Date: March 01, 2012
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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.
Series: Working Paper No. 12/89
Subject(s): Agricultural prices | Commodity prices | External shocks | Oil prices | Price increases

Author's Keyword(s): Inflation expectations | commodity prices
Publication Date: March 01, 2012
ISBN/ISSN: 9781475502633/1018-5941 Format: Paper
Stock No: WPIEA2012089 Pages: 25
US$18.00 (Academic Rate:
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