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Commodity Prices, Interest Rate Spreads and the Exchange Rate: Useful Monetary Policy Indicators or Redundant Information?

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  • Susanne M. Polley

    ()
    (Economics Department, SUNY Cortland)

  • Raymond E. Lombra

    ()
    (Economics Department, Penn State University)

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    Abstract

    We employ actual data from both private and public sector forecasters to conduct a simple, yet stringent test of the potential usefulness of indicator variables for the conduct of monetary policy. That is, we examine whether commodity prices, interest rate spreads and exchange rates can explain incipient errors in the economic forecasts developed by the Fed's staff and the ASA-NBER panel. Our results suggest that these variables do not contain additional information beyond that which policymakers have already incorporated in their forecasts. Hence, monitoring these variables further will not significantly enhance the accuracy of their forecasts, as the information in these variables is largely redundant.

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    File URL: http://college.holycross.edu/RePEc/eej/Archive/Volume25/V25N2P129_140.pdf
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    Bibliographic Info

    Article provided by Eastern Economic Association in its journal Eastern Economic Journal.

    Volume (Year): 25 (1999)
    Issue (Month): 2 (Spring)
    Pages: 129-140

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    Handle: RePEc:eej:eeconj:v:25:y:1999:i:2:p:129-140

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    Postal: c/o Dr. Alexandre Olbrecht, The Anisfield School of Business 205, Ramapo College, 505 Ramapo Valley Road, Ramapo, New Jersey 07430, USA
    Phone: (201) 684-7346
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    Web page: http://www.ramapo.edu/eea/journal.html
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    Related research

    Keywords: Exchange Rates; Fed; Interest Rates; Interest; Monetary Policy; Monetary; Policy;

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    Cited by:
    1. Ano Sujithan, Kuhanathan & Koliai, Lyes & Avouyi-Dovi, Sanvi, 2013. "Does Monetary Policy Respond to Commodity Price Shocks?," Economics Papers from University Paris Dauphine, Paris Dauphine University 123456789/11718, Paris Dauphine University.
    2. A.F.M. Kamrul Hassan & Ruhul A. Salim, 2011. "Is there any Link Between Commodity Price and Monetary Policy? Evidence from Australia," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, Queensland University of Technology (QUT), School of Economics and Finance, vol. 41(3), pages 205-216, December.

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