Aluminium market and the macroeconomy

Melisso Boschi () and Luca Pieroni

No 42/2008, Quaderni del Dipartimento di Economia, Finanza e Statistica from Università di Perugia, Dipartimento Economia

Abstract: We propose and test a structural model of the interaction between the aluminium market and the macroeconomy incorporating the rational expectations hypothesis. Based on a competition à la Cournot, our model predicts that aluminium spot price and inventories will respond to macroeconomic shocks to line up supply to the demand level. The model also includes incomplete adjustments to shocks that occur near the delivery date of futures contracts with the implication of a likely high persistence in the aluminium spot price. Estimation results show that the aluminium price is significantly affected by the real exchange rate, while the influence of the real interest rate is small. We argue that this result is largely expected once we consider the peculiar features of the aluminium market. Further support to this view is provided by the large persistence of the aluminium price response to its own shock and by the negligible contribution of stockholdings innovations to the price forecast error variance. Finally, macroeconomic shocks explain on the whole a relevant share of the aluminium market variables forecast error variance.

Keywords: Metal commodities; Monetary transmission mechanism; Rational Expectations Hypothesis test; SVAR (search for similar items in EconPapers)
JEL-codes: C32 D84 L11 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2008-01-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Journal Article: Aluminium market and the macroeconomy (2009)
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