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The Impact of Raw Materials Prices on the Interest Rate
Journal of Contextual Economics – Schmollers Jahrbuch, Vol. 119 (1999), Iss. 2 : pp. 173–189
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Graf Lambsdorff, Johann
Abstract
In an attempt to shed light on the relationship between raw materials prices and (nominal) interest rates the multitude of effects of raw materials price shifts on the economy are analyzed with the help of a Keynesian macroeconomic model, incorporating an endogenous capital stock, intermediate imports and a CES-production function. In contrast to ambiguous results to be found in the literature this allows us to argue in favor of a positive impact of raw materials prices on the interest rate. A conclusion is that a central bank should target the interest rate in case output stability is preferred over price stability.