Abstract
Abstract This study verifies whether speculative trading in commodity markets acted as the primary cause of the increase in commodity prices after the global financial crisis using the Structural Vector Autoregressive (SVAR) model. The effects of speculative trading on commodity prices increased by a factor of 3 to 6 after the crisis comparedto those before the crisis. Although the demand related variables, such as industrial production, affected commodity prices significantly before the crisis, their effects decreased after the crisis. Consequently, the rebound of commodityprices after the crisis was mainly caused by the increase in speculative money, fortified by the expansion of the globalliquidity supply. The global liquidity may well increase in the future, because the U.S. Federal Reserve Board is likelyto continue to increase its interest rate. This study claims that when global liquidity shrinks as a result of a changein the Fed's monetary policy stance, speculative trading will slow down, leading to a decline in commodity prices.
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