ARE THE COMMODITY CURRENCIES AN EXCEPTION TO THE RULE?

Chen Yu-Chin () and Kenneth Rogoff
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Chen Yu-Chin: Department of Economics, 338 Savery Hall, Box 353330, University of Washington, Seattle, WA, 98195-3330, USA

Global Journal of Economics (GJE), 2012, vol. 01, issue 01, 1-28

Abstract: This paper first confirms and extends findings in the previous literature that for major commodity exporters with market-based exchange rates, the world price of their primary commodity exports is an important and robust determinant for their real exchange rate values. However, despite inducing strong contemporaneous currency responses, commodity prices tell us little about subsequent exchange rate movements a quarter ahead. To further investigate real exchange rate predictability, we use Bayesian model averaging and least angle regression as mechanisms to address model uncertainty and select predictors. We show that while various combinations of macroeconomic fundamentals — including commodity prices at times — can help predict quarterly exchange rate changes, no single specification emerges as the clear winner across both countries and time periods.

Keywords: Exchange rates; commodity prices; nearly integrated regressors; model selection; forecasting; C53; F31; F47 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (5)

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Working Paper: Are the Commodity Currencies an Exception to the Rule? (2012)
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DOI: 10.1142/S2251361212500048

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