Comments on Jeffrey Frankel, " Commodity Prices and Monetary Policy "

I have no problems with the first point. Frankel provides considerable empirical evidence to support his conclusion. It also makes theoretical sense that commodity prices may be negatively correlated with real interest rates. Commodity prices can to a large extent be seen as asset prices. Asset prices are discounted present values of expected future returns. A rise in the real interest rate reduces the discount factors and thereby the present value of any given expected future returns. Hence, unless increases in real interest rates are systematically correlated with increases in expected returns or reductions in risk premia, the negative effect of the real interest rate on the present value should dominate.