Can Exchange Rates Forecast Commodity Prices?

Yu-Chin Chen, Kenneth S Rogoff and Barbara Rossi ()

No 13901, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We show that "commodity currency" exchange rates have remarkably 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 policymakers, 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.

JEL-codes: C52 C53 F31 F47 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-for, nep-ifn, nep-mon, nep-opm and nep-rmg
Date: 2008-03
Note: IFM ME
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Related works:
Working Paper: CAN EXCHANGE RATES FORECAST COMMODITY PRICES? (2008)
Working Paper: Can Exchange Rates Forecast Commodity Prices? (2008)
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