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Discussion Paper
What Tracks Commodity Prices?
Various news reports have asserted that the slowdown in China was a key factor driving down commodity prices in 2015. It is true that China’s growth eased last year and, owing to its manufacturing-intensive economy, that slackening could reasonably have had repercussions for commodity prices. Still, growth in Japan and Europe accelerated in 2015, with the net result that global growth was fairly steady last year, casting doubt on the China slowdown explanation. An alternative story relies on the strong correlation between the dollar and commodity prices over time. A simple regression shows ...
Discussion Paper
The Importance of Commodity Prices in Understanding U.S. Import Prices and Inflation
The dollar rose sharply against both the euro and yen in 2014 and 2015 and non-oil import prices subsequently fell. An explanation for this relationship is that a stronger dollar reduces the dollar-denominated cost of producing something in Germany or Japan, giving firms room to lower their dollar prices in order to gain sales against their U.S. competitors. A breakdown by type of good, however, shows that import prices for autos, consumer goods, and capital goods tend not to move much with changes in the dollar as foreign firms choose to keep the prices of their goods stable in the U.S. ...