Conferences at Department of Economics, University of Toronto, RCEF 2012: Cities, Open Economies, and Public Policy

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Large Scale Asset Purchases: Impact on Commodity Prices and International Spillover Effects

Sharon Kozicki, Eric Santor*, Lena Suchanek

Last modified: 2012-06-27


Prices of commodities, including metals, energy, and agricultural prices, have been rising over the past two years. Critics of the Fed argue that its large scale assets purchase (LSAP) programs have led to an excessively expansionary monetary policy stance, which, in turn, contributed to the rise in commodity prices. Using event study methodologies, this paper investigates whether the announcement and subsequent implementation of the three rounds of the Fed’s LSAPs affected commodity prices. Results do not suggest that LSAP announcements increased commodity prices. However, there is some evidence that suggests that the currencies of commodity exporters appreciated, and that their stock markets posted gains. These findings suggest that while other factors, such as supply constraints and robust EME demand were the likely drivers behind the increase in commodity prices, LSAPs did have spill-over effects into currencies and stock prices. Last, the paper finds that commodity prices have become more sensitive to macroeconomic news when monetary policy is at the effective lower bound.

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