| Summary: | In this paper, the authors present a model with integrated commodity and financial markets. Changes in the quantity of primary commodity stockholdings, or their price, affect macroeconomic aggregates in three ways: through their effect on the price of manufacturing output, through their effect on the rate of return on bonds, and through wealth effects. The model is used to study the effects of a fiscal expansion, a monetary expansion, and an increase in the supply of primary commodities, ass uming rational expectations in commodity markets, and assuming (for simplicity) real wage resistance. Parallels are drawn between commodity and foreign exchange markets in all cases.
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