Monetary policy and commodity markets: Unconventional versus conventional impact and the role of economic uncertainty

Abstract

This study explores the impact of both conventional and unconventional monetary policies in the US and the Euro area on the mean and volatility of certain commodity prices. The analysis considers the prices of eight commodities, i.e. oil, natural gas, gold, silver, aluminium, copper, platinum, and nickel, while the methodology employs the EGARCH-X modelling approach. The empirical findings clearly document that (i) the direction of the impact of both conventional and unconventional monetary policy on commodity returns and commodity volatility is similar and (ii) the impact from unconventional monetary policy on both commodity returns and volatility is relatively more pronounced, while these findings hold valid, irrespective of the geographical region and commodity type. Further investigation of the disparity on the size of the impact through the prism of economic uncertainty reveals that unconventional monetary policy has a stronger effect on economic uncertainty, thereby offering an indirect channel of monetary policy transmission on commodity markets.