Economic fundamentals and the long-run correlation between exchange rates and commodities

Ilias Tsiakas and Haibin Zhang

Global Finance Journal, 2021, vol. 49, issue C

Abstract: We examine the short-run and long-run dynamics of the correlation between exchange rate and commodity returns, and assess the extent to which the long-run correlation is determined by economic fundamentals. Our empirical analysis is based on the dynamic conditional correlation model with mixed-data sampling (DCC-MIDAS). This model separates the high-frequency from the low-frequency dynamics of volatility and correlation and allows us to relate long-run volatility and correlation to economic fundamentals. Using both economic and statistical criteria for performance evaluation, we find that economic fundamentals are important determinants of the long-run correlation between exchange rate and commodity returns.

Keywords: Exchange rates; Commodities; Commodity currencies; DCC-MIDAS (search for similar items in EconPapers)
JEL-codes: F31 F37 G11 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:49:y:2021:i:c:s1044028321000478

DOI: 10.1016/j.gfj.2021.100649

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