Monetary policy, global liquidity and commodity price dynamics

• This paper empirically examines the interactions between money, interest rates, goods and commodity prices at a global level.
• The analysis controls for interest rate changes and thus different monetary policy stances.
• Money is still found a key factor to determine the long-run homogeneity of commodity and goods prices movements.
• Commodity price developments can serve as indicators of future more general inflationary pressures.
• Strong monetary growth can help to gauge the emergence of bubbles in the commodities sector.

This paper examines the interactions between money, interest rates, goods and commodity prices at a global level. Aggregated data for major OECD countries are therefore analysed in a cointegrated VAR framework. Our empirical results for the period ranging from the 1970s to 2008 support the view that, when controlling for interest rate changes and thus different monetary policy stances, money (defined as a global liquidity aggregate) is still a key factor to determine the long-run homogeneity of commodity and goods prices movements.