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Modelling the Link between Commodity Prices and Exchange Rates: The Tale of Daily Data

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  • Peter S. Sephton

Abstract

This paper examines daily data on exchange rates and the prices of three commodities traded on the Winnipeg Commodity Exchange. The temporal patterns of commodity prices and exchange rates are shown to be similar: daily data are significantly non-normal, with GARCH models capturing the processes generating the data. Commodity prices and exchange rates are examined for cointegration using recent tests proposed by Johansen and Juselius (1990). Currency depreciation is shown to Granger cause commodity price inflation. This information might be useful to central bankers concerned with reducing general price inflation through targeting commodity price inflation. It also suggests that macro events have important effects on commodity markets in Canada.

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  • Peter S. Sephton, 1992. "Modelling the Link between Commodity Prices and Exchange Rates: The Tale of Daily Data," Canadian Journal of Economics, Canadian Economics Association, vol. 25(1), pages 156-171, February.
    • Handle: RePEc:cje:issued:v:25:y:1992:i:1:p:156-71
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    Cited by:

    1. Kalok Chan & Yiuman Tse & Michael Williams, 2011. "The Relationship between Commodity Prices and Currency Exchange Rates: Evidence from the Futures Markets," NBER Chapters, in: Commodity Prices and Markets, pages 47-71, National Bureau of Economic Research, Inc.
    2. Khalid Mushtaq & Abdul Ghafoor & Abedullah & Farhan Ahmad, 2011. "Impact of Monetary and Macroeconomic Factors on Wheat Prices in Pakistan: Implications for Food Security," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 16(1), pages 95-110, Jan-Jun.
    3. Yiuman Tse, 2010. "The Relationship between Commodity Prices and Currency Exchange Rates: Evidence from the Futures Markets," Working Papers 0005, College of Business, University of Texas at San Antonio.

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