Noncausality and the commodity currency hypothesis
Matthijs Lof () and
Energy Economics, 2017, vol. 65, issue C, 424-433
This paper provides new evidence on the role of exchange rates in forecasting commodity prices. Consistent with previous studies, we find that commodity currencies hold out-of-sample predictive power for commodity prices when using standard linear predictive regressions. After we reconsider the evidence using noncausal autoregressions, which provide a better fit to the data and are able to accommodate the effects of nonlinearities and omitted variables, the predictive power of exchange rates disappears.
Keywords: Commodity prices; Exchange rates; Noncausal autoregression; Nonlinearity (search for similar items in EconPapers)
JEL-codes: C53 F37 Q02 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:65:y:2017:i:c:p:424-433
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