Ball and Mankiw (1995) discuss these issues and argue that the second type of relative price shock is quantitatively very important. 3  The rise in a broad range of commodity prices, as has occurred from time to time recently, would not affect the basic analysis which rests on the contrasting behavior of flexible and sluggishly adjusting prices.
However, the simultaneous rise in many commodity prices might suggest that strong global aggregate demand is playing an important role, which would affect the appropriate setting for monetary policy. See the section below on Global Demand, Trending Commodity Prices and Monetary Policy. 2  BIS Review 76/2008  key factor. Lagged values of inflation typically proxy for inflation expectations.