Wrap-up Discussion

The unifying theme of the conference has been that the inflationary effects associated with changes in commodity prices depend on the more fundamental shocks that drive commodity prices. Moreover, since changes in prices of oil and other commodities are relative price shocks they do not cause inflation. In contrast, central banks can cause inflation and they respond to real shocks, so it is necessary to understand central banks’ reactions to changes in relative prices. In looking at any historical episode three sets of issues must be resolved. First, what caused the change in the relative prices of commodities and how did this affect other real variables? Second, how did this combination of real changes influence nominal price setting behaviour? And finally, how did the monetary authorities react to these economic developments?