Forecasting Inflation using Commodity Price Aggregates

Yu-chin Chen, Stephen J Turnovsky and Eric Zivot

No UWEC-2011-14, Working Papers from University of Washington, Department of Economics

Abstract: This paper shows that for five small commodity-exporting countries that have adopted inflation targeting monetary policies, world commodity price aggregates have predictive power for their CPI and PPI inflation, particularly once possible structural breaks are taken into account. This conclusion is robust to using either disaggregated or aggregated commodity price indexes (although the former perform better), the currency denomination of the commodity prices, and to using mixed-frequency data. In pseudo out-of-sample forecasting, commodity indexes outperform the random walk and AR(1) processes, although the improvements over the latter are sometimes modest.

Date: 2011-09
New Economics Papers: this item is included in nep-cba, nep-cis, nep-for, nep-mac and nep-mon
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Journal Article: Forecasting inflation using commodity price aggregates (2014)
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