Commodity Price Responses to Monetary Policy Surprises

Information contained in high-frequency financial market data reveals that a 10 basis-point surprise increase in interest rates causes commodity prices to fall immediately by approximately 0.6%. This is similar to the estimated responses of both the Standard and Poor's 500 and a United States trade weighted exchange rate index, and approximately five times larger than the response in a standard vector autoregression, even twelve months after the shock. Metals prices tend to respond more than agricultural commodities. The point estimate for oil prices is similar to other commodities, but is estimated less precisely.