World Commodity Prices as a Forecasting Tool for Retail Prices: Evidence From the United Kingdom

John Thornton and Alicia García-Herrero
Authors registered in the RePEc Author Service: Alicia Garcia Herrero

No 1997/070, IMF Working Papers from International Monetary Fund

Abstract: This paper investigates, using cointegration and Granger-causality techniques, whether a stable long-run co-movement exists between world commodity prices and U.K. retail prices, and whether short-run changes in commodity prices convey information about future movements in U.K. retail prices. The results show noncointegration and no unidirectional Granger causality from commodity to retail prices. These findings suggest that little may be gained from using developments in commodity prices to forecast movements in retail prices in the inflation-targeting framework followed by the U.K. monetary authorities.

Keywords: WP; commodity price; commodity; RPIX; price index; Commodity prices; monetary policy; United Kingdom; commodity content; Granger-causality test; commodity stock; world commodity price indices; use of commodity price; impact of commodity price; commodity prices with U.K.; causality from commodity price; gold price index; Granger-causality technique; decline in the commodity content of output; error-correction term; Commodity price indexes; Inflation; Inflation targeting; Price indexes (search for similar items in EconPapers)
Pages: 15
Date: 1997-06-01
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