International Monetary Fund
Institutional Affiliation: International Monetary Fund
NBER Working Papers and Publications
|November 1989||Commodity Prices and Inflation: Evidence From Seven Large Industrial Countries|
with James M. Boughton, William H. Branson: w3158
This paper examines the relationships between movements in primary commodity prices and changes in inflation in the large industrial countries. It begins by developing a two-country model in order to examine the theoretical effects of monetary, fiscal, and supply-side disturbances on commodity and manufactures prices and on exchange rates. It is shown that if monetary shocks dominate, then commodity prices should lead general price movements, and the level of commodity prices should be correlated with the general inflation rate. Non-monetary shocks generally weaken these relationships, but such disturbances may cancel out for broad indexes covering a wide range of commodities. Country-specific commodity price indexes are developed for the major industrial countries. The weights assigned t...