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Does commodity price impact monetary policy? Evidence from Australia

Salim, R. and Hassan, K. (2008) Does commodity price impact monetary policy? Evidence from Australia. In: Annual London conference on money, economy and management, 3 - 4 July, South Kensington, UK pp. 1-17.



The aim of this paper is to examine whether the commodity prices predicting inflation, unemployment and short term interest rate in Australia. Time series econometrics such as vector autoregressive model, cointegration and granger causality are used for this purpose. The empirical shows that three commodity prices (COMRL, COMNRL and COMBSMTL) precede inflation. However, no evidence of reverse causation is found. These finding have important implication for monetary authority. Inflation targeting experience has so far been hit by positive supply shocks. In case of negative supply shock, commodity price may be useful in singling out the likely direction of inflation.

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