We review the main identification strategies and empirical evidence on the role of expectations in the New Keynesian Phillips curve, paying particular attention to the issue of weak identi...

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Empirical Evidence on Inflation Expectations in the New Keynesian Phillips Curve

We examine the performance of liquidity proxies in commodities. The Amihud measure has the largest correlation with liquidity benchmarks. Amivest and Effective Tick measures also perform well. These proxies are useful for studies of commodity liquidity over a long time period and those that lack access to high-frequency data. We use various aspects of transaction costs, such as spread, depth, immediacy, and resiliency, to give insight into the costs of different execution approaches. Transaction costs increase with volatility and exhibit mean reversion. Splitting trades over one hour can reduce trading costs by two-thirds compared to an immediate execution. The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.

Commodity Liquidity Measurement and Transaction Costs

This paper provides evidence that the two leading principal components in a panel of 23 commodity convenience yields have statistically and quantitatively important predictive power for inflation even after controlling for unemployment gap and oil prices. The results hold up in out-of-sample forecasts, across forecast horizons, and across G7 countries. The convenience yields also explain commodity prices and can be seen as informational variables about future economic conditions as conveyed by the futures markets. A bootstrap procedure for conducting inference when the principal components are used as regressors is also proposed.

/pdf/commodity-prices-convenience-yields-and-inflation-2b2w4z752v.pdf

Commodity Prices, Convenience Yields, and Inflation

The purpose of this paper is to use insights from the academic literature on crises to understand the role of liquidity in the current crisis. We focus on four of the crucial features of the crisis that we argue are related to liquidity provision. The first is the fall of the prices of AAA-rated tranches of securitized products below fundamental values. The second is the effect of the crisis on the interbank markets for term funding and on collateralized money markets. The third is fear of contagion should a major institution fail. Finally, we consider the effects on the real economy.

/pdf/the-role-of-liquidity-in-financial-crises-2adv3hp0ji.pdf

The Role of Liquidity in Financial Crises

We examine liquidity commonality in commodity futures markets. Using data from 16 agricultural, energy, industrial metal, precious metal, and livestock commodities, we show there is a strong systematic liquidity factor in commodities. Liquidity commonality was present in 1997 - 2003 when commodity prices were relatively stable and during the recent boom. There is some support for both “supply-side” and “demand-side” explanations for this commonality. We also find some evidence that changes in stock market liquidity positively influence changes in individual commodity liquidity.

William T. Dickens

Papers

Outstanding Issues in the Analysis of Inflation