Department of Agricultural and Resource Economics
Arbitrage conditions, interest rates, and intertemporal commodity price relationships
- Author(s): Kitchen, John
- Rausser, Gordon C.
- et al.
Recent studies have presented different views on the relationship between interest rates and commodity prices. The theory of storage and arbitrage approaches fully incorporate nominal interest rates in commodity price spreads. Alternative frameworks admit a relationship between the interest rate and commodity own rates of interest and, as a result, the commodity price spread would not completely incorporate the nominal interest rate. The various views on interest rate-commodity price relationships, the potential role of nonneutralities, and existing empirical evidence are examined.