Monetary Policy and Resource Security

Resource security – the capacity to meet current and future demand for food, water, land, energy and minerals – has been a key concern for policymakers for a long time. As global consumption levels rise, debates on how to safeguard natural capital are moving up the agenda worldwide. Various policy fields have been in focus in this context. Fiscal policy (e.g. initiatives to promote resource taxation) as well as trade policy (e.g. discussions about the effects of resource export controls) are examples for that.

This workshop contributed to this debate by putting a spotlight on monetary policy and its current and potential future impact on resource security, as well as on monetary policy reactions to changes in resource prices and volatilities. It built upon the extensive body of research on the transmission mechanisms between monetary policy and commodity markets, explored how these channels affect short- and long-term resources supply and demand, and identified key questions for future analysis.

The workshop is part of a larger CEP program to advance research and public debate on the impacts of monetary policy on sustainability and to build a network of academics and practitioners on this issue. In this context, it is also part of the process leading up to a CEP conference on “Monetary Policy and Sustainability” at the Bellagio Centre of the Rockefeller Foundation from 16-20 June 2014.

Guiding questions

The following questions provided initial guidance. Further topics were identified at the workshop:

What is the impact of monetary policy on commodity spot and futures prices as well as volatility and correlation? What are the relevant channels in this context? How do these impacts affect resource supply, demand and inventories in the short as well as the long-term? How do these effects differ with regard to different commodity categories (e.g. renewable and non-renewable, storable and non-storable)?

What are plausible scenarios for the future impact of monetary policy – in particular an unwinding of QE – on commodity markets? What are the likely effects of these scenarios on short- and long-term resource supply and demand?

What is the expected impact of commodity scarcities on inflation as measured by different indicators such as headline and core Consumer Price Indexes as well as Producer Price Indexes or Import/Export Price Indexes? How should central banks react to that?

Are there alternatives to current monetary policies that remain in line with central bank mandates, but are better aligned with the objective of resource security?

Are there ideas for monetary reform that would strengthen the capacity to meet current and future demand for food, water, energy and minerals?