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Can exchange rates forecast commodity prices?

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492.7 Kb
Date
2010-08-01
Authors
Chen, YC
Rogoff, KS
Rossi, B
Repository Usage Stats
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Abstract
We show that "commodity currency" exchange rates have surprisingly robust power in predicting global commodity prices, both in-sample and out-of-sample, and against a variety of alternative benchmarks. This result is of particular interest to policy makers, given the lack of deep forward markets in many individual commodities, and broad aggregate commodity indices in particular. We also explore the reverse relationship (commodity prices forecasting exchange rates) but find it to be notably less robust. We offer a theoretical resolution, based on the fact that exchange rates are strongly forward-looking, whereas commodity price fluctuations are typically more sensitive to short-term demand imbalances. © 2010 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
Type
Journal article
Permalink
https://hdl.handle.net/10161/4522
Published Version (Please cite this version)
10.1162/qjec.2010.125.3.1145
Publication Info
Chen, YC; Rogoff, KS; & Rossi, B (2010). Can exchange rates forecast commodity prices?. Quarterly Journal of Economics, 125(3). pp. 1145-1194. 10.1162/qjec.2010.125.3.1145. Retrieved from https://hdl.handle.net/10161/4522.
This is constructed from limited available data and may be imprecise. To cite this article, please review & use the official citation provided by the journal.
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