Can exchange rates forecast commodity prices?
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.
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https://hdl.handle.net/10161/4522Published Version (Please cite this version)
10.1162/qjec.2010.125.3.1145Publication 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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