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An Examination Of Linear And Nonlinear Causal Relationships Between Commodity Prices And U.S. Inflation, Renuka Mahadevan, Sandy Suardi May 2015

An Examination Of Linear And Nonlinear Causal Relationships Between Commodity Prices And U.S. Inflation, Renuka Mahadevan, Sandy Suardi

Sandy Suardi

This article uses both linear and nonlinear causality tests to examine the causal relationships between changes in commodity prices and U.S. inflation. Prior to the Great Moderation, there is evidence that changes in commodity price indices linearly lead inflation. The stability of the causal relationship appears to vary over time with a stronger bivariate link established before the Great Moderation. Further, there is evidence of significant nonlinear causality from raw industrials and metals indices to inflation with most of this detected nonlinear relationship being captured using the Baba, Engle, Kraft, and Kroner asymmetric generalized autoregressive conditional heteroskedasticity model. This implies …