The Effects of Monetary Policy on Price Dynamics of Commodities Based on Storage: The Case of SHFE
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| Title | The Effects of Monetary Policy on Price Dynamics of Commodities Based on Storage: The Case of SHFE
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| Author | Zheng Zunxin and Xu xiaoguang |
| Organization | College of Economics, Shenzhen University |
| Email | zxzheng@szu.edu.cn,xxg_sz@163.com |
| Key Words | Monetary Policy; Storage; Commodity Price; Dynamics Evolution |
| Abstract | Commodity Storage is key point of view to analyze the effects of monetary policy on price dynamics. The theory of Storage will be adopted to reconstruct Frankel’s Overshooting Model, which is basic analysis framework of effects of monetary policy on commodity price. Theoretical analysis finds that, (1) direct effect of monetary policy adjusts market interest, and indirect effects on convenience yields and marginal risk aversion cost, both effects push the supply curve of storage, make market equilibrium moving, and finally have influence on the expectation of commodity price change; (2) commodity price goes up and overshoots under excess liquidity, whereas commodity price goes down and undershoots for convenience yield under tighten liquidity; and monetary policy impresses asymmetric influences on price dynamics of commodity. Empirical framework based on futures market will be constructed by incorporating risk premium theory into the model of storage, and empirical study from SHFE finds that theoretical results are supported perfectly. |
| Serial Number | WP333 |
| Time | 2012-08-29 |
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