Dynamic responses and tail-dependence among commodities, the US real interest rate and the dollar

Abstract

Theoretical models suggest monetary policy is transmitted to commodity prices. We quantify this channel using several empirical methods under daily data. In early 2009, the US real interest rate became negative, with sample mean varying from 1.75 % (in the mid-1997 to January 28, 2009, subsample) to $$-1.50\,\%$$ (in January 29, 2009, to mid-September 2013 subsample). Gold displays higher risk-adjusted returns earlier, while copper and oil have higher risk-adjusted returns more recently. Shocks to the exchange rate and the real interest rate in VARs explain almost 30 % for oil and 32 % for copper more recently when impulse responses are more significant. The time-varying correlation of oil with the real interest rate in the more recent period is $$-0.462$$ , and its correlation with the exchange rate is $$-0.460$$ , compared to $$-0.089$$ and $$-0.120$$ , respectively, in the earlier period. Vine copula methods identify a dependence pattern of C-vine copula with t-copula in almost every pair among commodity prices, the real value of the US dollar and the US real interest rate.