DP271 Output, Inflation and Commodity Prices

Author(s): Thomas Moutos, David Vines
Publication Date: September 1988
Keyword(s): Commodity Prices, Developed Countries, Expectations, Inflation
JEL(s): 023, 133, 321, 431, 711
Programme Areas: International Macroeconomics, International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=271

The purpose of this paper is to provide a simple model which illuminates the interdependence between primary commodity prices and the rest of the economy. We study the role of commodity prices in a disinflation program, the role of commodity prices in determining whether or not a fiscal expansion is crowded out, and the effect on the manufacturing sector of the economy (i.e. that part of the economy described by a conventional macroeconomic model) of an exogenous increase in the supply of primary commodities. One of our main concerns is to draw an analogy between the roles of commodity prices and of exchange rates in all of the above processes.