Communication Matters: U.S. Monetary Policy And Commodity Price Volatility

Using a GARCH model, the authors analyze the influence of U.S. monetary policy action and communication on the price volatility of commodities for the period 1998-2009. They find, first, that U.S. monetary policy events have an economically significant impact on price volatility. Second, expected target rate changes and communications decrease volatility, whereas target rate surprises and unorthodox monetary policy measures increase it. Third, they find a change in reaction to central bank communication during the recent financial crisis: the "Calming" effect of communication found for the whole sample is partly offset during that period.