Publications
- Can Exchange Rates Forecast Commodity Prices?
- Download: PDF 241.43 KB
- by Rogoff, Kenneth S.; Rossi, Barbara; Chen, Yu-chin
- This paper studies the dynamic relationship between exchange rate fluctuations and world commodity price movements. Taking into account parameter instability, we demonstrate
surprisingly robust evidence that exchange rates predict world commodity price movements, both in-sample and out-of-sample. Our results are consistent with a present value relationship in which the exchange rate depends on a present value of fundamentals including, for a core group of commodity exporters, the world price of their commodity exports. Because global commodity prices are essentially exogenous to these countries, we are able to avoid the endogeneity pitfalls that plague most of the related exchange rate literature. More directly, the analysis suggests that where commodity price forward markets are thin or non-existent, exchange rate-based forecasts may be a viable alternative for predicting future price movements.
- Publication Type: WCFIA Working Paper
- Published Date: February 14, 2008
- Field of Interest: International Economics
- Rogoff, Kenneth S., Yu-chin Chen, and Barbara Rossi. "Can Exchange Rates Forecast Commodity Prices?" Working Paper 2008-0107, Weatherhead Center for International Affairs, Harvard University, February 14, 2008.
