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Go Tamakoshi and Shigeyuki Hamori
''Informational roles of commodity prices for monetary policy: evidence from the Euro area''
( 2012, Vol. 32 No.2 )
This paper examines the linear and nonlinear causal relationships between commodity price indices and macroeconomic variables such as the consumer price index (CPI) and the industrial production index (IP) in the Euro zone. We use monthly time series data from January 1999 to December 2011 and employ a solid nonparametric, nonlinear causality test by Diks and Panchenko (2006) as well as the linear Granger causality test using Lag Augmented Vector Autoregression (LA-VAR) approach. Main findings of the study include: (i) Oil price only linearly Granger-causes the CPI and hence can be seen as a better information variable for the general price level than non-energy commodity price. (ii) There is a significant one-way linear causality from commodity price to IP. (iii) A significant nonlinear relationship between CPI and IP is identified by the nonparametric causality test. Such results are relevant for monetary policy makers who wish to mitigate the possible future inflation by using commodity or oil price indices as information variables.
Keywords: Monetary policy; Non-parametric nonlinear Granger test; Lag-augmented VAR; Commodity prices; Oil prices
JEL: E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit: General
E3 - Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data)
Manuscript Received : Apr 07 2012 Manuscript Accepted : Apr 25 2012

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