Modelling the Link between Commodity Prices and Exchange Rates: The Tale of Daily Data

Peter Sephton ()

Canadian Journal of Economics, 1992, vol. 25, issue 1, 156-71

Abstract: This paper examines daily data on exchange rates and the prices of three commodities traded on the Winnipeg Commodity Exchange. The temporal patterns of commodity prices and exchange rates are shown to be similar: daily data are significantly non-normal, with GARCH models capturing the processes generating the data. Commodity prices and exchange rates are examined for cointegration using recent tests proposed by Johansen and Juselius (1990). Currency depreciation is shown to Granger cause commodity price inflation. This information might be useful to central bankers concerned with reducing general price inflation through targeting commodity price inflation. It also suggests that macro events have important effects on commodity markets in Canada.

Date: 1992
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