Can Exchange Rates Forecast Commodity Prices?

Yu-Chin Chen, Kenneth Rogoff and Barbara Rossi

The Quarterly Journal of Economics, 2010, vol. 125, issue 3, 1145-1194

Abstract: We show that "commodity currency" exchange rates have surprisingly 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 policy makers, 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.

Date: 2010
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Citations: View citations in EconPapers (426)

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Related works:
Working Paper: Can Exchange Rates Forecast Commodity Prices? (2010)
Working Paper: Can Exchange Rates Forecast Commodity Prices? (2010)
Working Paper: CAN EXCHANGE RATES FORECAST COMMODITY PRICES? (2008)
Working Paper: Can Exchange Rates Forecast Commodity Prices? (2008)
Working Paper: Can Exchange Rates Forecast Commodity Prices? (2008)
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