Global money supply and energy and non-energy commodity prices: A MS-TV-VAR approach

This paper shows that the impact of the global money supply is disproportionally higher for energy than for non-energy commodities prices. An increase in the global money supply for energy commodity prices results mainly in demand-pull inflation, while, for non-energy commodity prices, an increase in global money supply leads to demand-pull and cost-push inflation, as energy is a key input for non-energy commodities. To quantify this effect, we use a Markov switching model with time-varying transition probabilities. This model considers periods of slow, moderate, and fast global money supply growth. We find that the response to global money supply shocks is almost double for energy than for non-energy commodity prices. We also find heterogeneous responses for energy and non-energy commodities under different regimes.