Trade-finance arbitrage, commodity price change and the effect of monetary policy

【Author】

ZHENG Zunxin;WANG Qi;XU Xiaoguang

【Institution】

College of Economics, Shenzhen University;College of Economics, Shenzhen University;College of Economics, Shenzhen University

【Abstract】

Over recent years, carry trade activities are extremely active in the trade of bulk commodity. But currently there still lacks a systematic theoretical analysis framework and effective measures of policy response. Based on the traditional inventory theory, the paper attempts to introduce the factors of carry trade, and establish an equilibrium analysis framework for arbitrage inventory, to provide a new perspective for observing the commodity price change and the effect of monetary policy, and the “effect display” method for diagnosing the active degree of trade-finance arbitrage. The empirical study finds the cross-border trade-finance arbitrage is more active than the domestic one. When the domestic market interest rate exceeds the equilibrium one and moves upward, it helps to expand the spread of carry trade and strengthen the effect of it. The depreciation of RMB and government regulation has inhibited the behavior of carry trade, but the effect is limited. When tightened monetary policies are implemented in China, the effect of carry trade will strengthen the commodity market’s “under-adjustment” phenomenon.

【Keywords】

the effect of cost-of-carry;the effect of carry trade;commodity prices change;the effect of monetary policy

References

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Springer Journals Database

Total: 19 articles

  • [1] Li Jinghui & Fan Zhiyong (Department of Economic Construction,Ministry of Finance & China Center for Economic Research, Peking University), The Impact of Interest Rate and Inflation Expectation on the Price Fluctuation of Bulk-trading Merchandise ——A Positive Research on the Relation between Chinese Market Grain Price and Inflation, Economic Research Journal,
  • [2] Zhang Chengsi;Liu Zehao;Luo Yu;Renmin University of China;Tsinghua University;, Goods Financialization and Inflation in China, Economic Research Journal,
  • [3] Zheng Zunxin and Xu Xiaoguang (School of Economics, Shenzhen University), The Effects of Monetary Policy on Price Dynamics of Commodities in the View of Storage:the Case of SHFE, Economic Research Journal,
  • [4] Peng Liu;;Ke Tang, The stochastic behavior of commodity prices with heteroskedasticity in the convenience yield, Journal of Empirical Finance,

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