Monetary policy and price dynamics in a commodity futures market

Using a general-equilibrium framework, this paper examines the price dynamics of a monetary shock for a small open economy with commodity spot and futures markets. The agricultural spot price can fall by exhibiting a mis-adjustment at the instant of the announcement of the increase in the money supply under certain conditions. Accordingly, the price of agricultural futures can fall at the instant of the policy announcement but it eventually increases to a new equilibrium level when the policy is implemented.