Table of Contents
Economics Research International
Volume 2014, Article ID 649734, 13 pages
Research Article

The Effect of Monetary Policy on Commodity Prices: Disentangling the Evidence for Individual Prices

1Inflation and Macroeconomic Programming Department, Banco de la República, Colombia
2Research Unit, Banco de la República, Carrera 7 No. 14-78, Bogotá, Colombia

Received 2 April 2014; Revised 4 August 2014; Accepted 14 August 2014; Published 24 December 2014

Academic Editor: Jean Paul Chavas

Copyright © 2014 Carolina Arteaga Cabrales et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.


We study the effect of monetary policy shocks on commodity prices. While most of the literature has found that expansionary shocks have a positive effect on aggregate price indices, we study the effect on individual prices of a sample of four commodities. This set of commodity prices is essential to understand the dynamics of the balance of payments in Colombia. The analysis is based on structural VAR models; we identify monetary policy shocks following Kim (1999, 2003) upon quarterly data for commodity prices and their fundamentals for the period from 1980q1 to 2010q3. Our results show that commodity prices overshoot their long run equilibrium in response to a contractionary shock in the US monetary policy and, in contrast with literature, the response of the individual prices considered is stronger than what has been found in aggregate indices. Additionally, it is found that the monetary policy explains a substantial share of the fluctuations in prices.