Real Interest Rates and Real Returns of Agricultural Commodities : Does Quantitative Easing Matter?

By adopting wavelet coherence analysis, we follow Frankel’s (1986) commodity price overshooting model to study the dynamic covariation between the expected real interest rates and six agricultural commodities’ real returns over the period from 2000:1 to 2018:7. We find that US unconventional monetary policy may cause more positive and significant covariation between the expected real interest rates and agricultural commodities’ real returns over the short horizons; a lead-lag relationship that runs from agricultural commodities’ real returns to the expected real short-term interest rates over the long horizons; and a lead-lag relationship from agricultural commodities’ real returns to the expected real long-term interest rates over short horizons