Effects of speculation and interest rates in a “carry trade” model of commodity prices

By Jeffrey A. Frankel. 2013

154 citations recorded by the source corpus.

The paper presents and estimates a model of the prices of oil and other storable commodities, a model that can be characterized as reflecting the carry trade. It focuses on speculative factors, here defined as the trade-off between interest rates on the one hand and market participants' expectations of future price changes on the other hand. It goes beyond past research by bringing to bear new data sources: survey data to measure expectations of future changes in commodity prices and options data to measure perceptions of risk. Some evidence is found of a negative effect of interest rates on the demand for inventories and thereby on commodity prices and positive effects of expected future price gains on inventory demand and thereby on today's commodity prices.

Subfields: Economics and Econometrics, Renewable Energy, Sustainability and the Environment

View Paper: https://www.semanticscholar.org/paper/603e444ac160181ac70e16da44dfe0c4f4f18729

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Citations in the corpus

Relationship between gold and stock markets during the global financial crisis: Evidence from nonlinear causality tests (2015, methodology): “Frankel (2014) and Barsky and Kilian (2002, 2004) show that the commodity prices- e.g., gold, oil and minerals, etc. - are inversely related to interest rate movements.”
The impact of uncertainty shocks on the volatility of commodity prices (2018, background): “…prices (see Frankel and Hardouvelis, 1985; Gordon and Rowenhorst, 2006; Frankel, 2008; Frankel and Rose, 2010; Gilbert, 2010; Anzuini et al., 2013; Frankel, 2013; Gubler and Hertweck, 2013; Hammoudeh et al., 2015), we find that the uncertainty about the future path of monetary policy has a rather…”
Oil Prices, Exchange Rates and Interest Rates (2019, unknown): “Our structural VAR analysis provides the first direct empirical evidence for a causal link from U.S. real interest rates to real commodity prices, as described by Frankel (1984, 2008, 2014), among others, while accounting for the endogeneity of all model variables.”
The relationship between energy and equity markets: evidence from volatility impulse response functions (2014, background): “We investigate one potentially important variable the dollar index, however, further research could investigate other potentially important variables such as the short-term interest rate (Frankel, 2014).”