Bank of Korea paper investigates link between liquidity and commodity prices

Financial crisis may have altered relationship

Bank of Korea, Seoul
The Bank of Korea

A working paper published on May 19 by the Bank of Korea has found a link between global liquidity and commodity prices.

The paper, Global liquidity and commodity pricesby Hyunju Kang, Bok-Keun Yu and Jongmin Yu, notes commodity prices rebounded quickly after the 2008 financial crisis, much faster than the economic recovery in most countries.

The researchers use a structural vector autoregression to investigate this trend, based on data from January 2004 to April 2014. They find energy and metals have become more sensitive to changes in global liquidity since the crisis.

"The main contribution of our paper is that this research confirms the effect of global liquidity on commodity prices in a short-run manner while considering the supply and demand factors of each commodity group," the authors say.

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