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David Cronin

15 March 2007
The influence of commodity prices on consumer prices is usually seen as originating in commodity markets. We argue, however, that long run and short run relationships should exist between commodity prices, consumer prices and money and that the influence of commodity prices on consumer prices occurs through a money-driven overshooting of commodity prices being corrected over time. Using a cointegrating VAR framework and US data, our empirical findings are supportive of these relationships, with both commodity and consumer prices proportional to the money supply in the long run, commodity prices initially overshooting their new equilibrium values in response to a money supply shock, and the deviation of commodity prices from their equilibrium values having explanatory power for subsequent consumer price inflation.
JEL Code
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
29 January 2018
Brunnermeier et al. (2017) propose the introduction of sovereign bond-backed securities (SBBS) in the euro area. It and other papers address how the securitisation would insulate senior security holders from actual default-related losses. This article generalises the assessment by using the VAR-based Diebold & Yilmaz (2012) spillover index methodology to assess potential attenuation of the spillover of shocks in holding-period returns across asset markets from the introduction of SBBS. This is made possible by employing SBBS yields estimated from historical euro area member state sovereign bond yields using Monte Carlo methods, as described in Schönbucher (2003). The econometric results show that (i) SBBS tranching protects senior SBBS holders by reducing the spillover of shocks from the higher-risk peripheral member states to it; (ii) spillovers from high risk sovereigns to a weighted portfolio are much higher than those to the senior SBBS; (iii) a smaller junior SBBS tranche, and the introduction of a mezzanine security, reduces spillover from it to the senior SBBS; and (iv) rolling window analysis indicates that the spillover of shocks from the junior tranche to the senior tranche declines during a period of financial stress.
JEL Code
C58 : Mathematical and Quantitative Methods→Econometric Modeling→Financial Econometrics
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G17 : Financial Economics→General Financial Markets→Financial Forecasting and Simulation