literature review Essay

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Literature Review: The Impact of Monetary Policy Shocks on Commodity Price
In modern global business operations, monetary condition has played a major role in determining commodity prices irrespective of the target market environment and the associated demographic factors. Commodity prices have been a source of great concern among policy makers due to the associated economic implications. This is attributed to commodity prices as essential elements defining consumer pricing index and determining the prevailing monetary policies in a given VAR system. Therefore, it is necessary to evaluate the relationship between monetary policies, commodity prices, and other market parameters influencing operational dynamics.
The article examines impacts of monetary policy fluctuations to overall commodity prices. Depending on monetary policies, the commodity pricing index can be determined as the basic input to financial analysis models. Variables often include federal funds, money stock (M2), CPI, and commodity production index in dollars. Usually, monetary policies involve the process of controlling the flow of money within an economy through diversified interest rates. Through these rates, the governing authorities control and promote economic stability and growth depending on the intended outcomes. To stabilize commodity prices depending on the market dynamics and economic operations, the structural equation is:
C (L)yt = ηt where;
C (L) is a polynomial matrix and V ar (ηt) = Λ illustrates the diagonal variance in the structural equation.
The extent in which monetary policies influence commodity prices is another essential factor for consideration. Monetary policies often influence the relationship between the prevailing interest rates, and the existing economic conditions. Additionally, the policies control the prices, and influence the overall economic operations. Usually, policies utilize various tools in order to control economic variables, as well as anticipated outcomes. Some outcomes include economic growth, commodity prices, and inflationary rates. This means that monetary policies play a major role in determining commodity price index fluctuations depending on the economic variations.
The article examines the transmission channels used by the monetary policies to influence commodity prices. Low interest rates are among the channels which influence the availability of opportunity costs, rates of investment, and demand factors. With time, this channel determines the overall demand for commodities and resultant price fluctuations. Conversely, the supply channel influences the pricing index since it creates speculative opportunities among various operators in the global economy. Monetary policies are able to influence various economic variables depending on the operational conditions and intended outcomes through the channels.
Various lessons are derived from the article with respect to the relationship between commodity prices and monetary policies. The commodity price index of the U.S. can be derived from market operations which took place for the past three decades. Using this data, it can be established that a general increase in commodity prices leads to inflationary tendencies throughout the economy up to 4.5 percent. Due to these tendencies, the federal authorities are required to intervene in
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