This study examines the effects of Chinese monetary policy on global commodity prices during the quarterly period from Q1 1996 to Q4 2021. Using a Bayesian structural VAR model, the study evaluates the impact of interest rate shocks and money supply (M2) shocks on these commodity prices.
Key Results:
- Impact of Interest Rate Shocks
- Positive interest rate shock has a negative and persistent effect on commodity prices
- Beverage and metal prices decline more in response to this shock
- Impact of Money Supply Growth
- Positive shock to M2 growth rate has a strong effect on non-fuel commodity prices
- Agricultural raw materials and metals are significantly affected
- Highly volatile food and fuel prices are less affected
- Effectiveness of Monetary Tools
- While both M2 growth rate and interest rate appear important as macroeconomic stabilizers
- The quantity tool (M2) appears more effective than the price tool in explaining commodity prices
- Impact on Global Uncertainty
- Raising interest rates is associated with sustained increase in global uncertainty
- Monetary expansions lead to long-term decline in this variable
Effects on Chinese Export Prices
The results indicate that Chinese monetary policies play a pivotal role in shaping global commodity prices, which in turn affects:
- Competitiveness of Chinese exports: Declining global commodity prices can improve profit margins for Chinese exporters
- Price stability: Expansionary monetary policies help stabilize commodity markets
- Long-term planning: Understanding these relationships helps companies plan export strategies