Nowcasting Inflation at Quantiles: Causality from Commodities

Sara Boni (), Massimiliano Caporin and Francesco Ravazzolo ()
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Sara Boni: Faculty of Economics and Management, Free University of Bozen-Bolzano, Italy
Francesco Ravazzolo: @ Department of Data Science and Analytics, BI Norwegian Business School, Norway; Faculty of Economics and Management, Free University of Bozen-Bolzano, Italy

No BEMPS102, BEMPS - Bozen Economics & Management Paper Series from Faculty of Economics and Management at the Free University of Bozen

Abstract: This paper proposes a non-parametric test for Granger causality in quantiles to detect causality from a high-frequency driver to a low-frequency target. In an economic application, we examine Granger causality between inflation, as a low-frequency macroeconomic variable, and a selection of commodity futures, including gold, oil, and corn, as high-frequency financial variables. We find that logarithmic returns on given commodity futures are a prima facie cause of inflation at the lower quantiles of the distribution and marginally around the median. In the context of a nowcasting exercise, we find that incorporating commodity futures in the model with a polynomial function enhances short-term forecasting accuracy, leveraging timely data for more precise nowcasting of inflationary trends.

Keywords: MIDAS Quantile; Granger Causality; Commodities; Inflation; Nowcasting. (search for similar items in EconPapers)
JEL-codes: C12 C14 C58 E31 Q02 (search for similar items in EconPapers)
Pages: [88 pages]
Date: 2024-01
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-mon
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