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Forecasting and Analyzing World Commodity Prices

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Author Info
René Lalonde
Zhenhua Zhu
Frédérick Demers

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Abstract

The authors develop simple econometric models to analyze and forecast two components of the Bank of Canada commodity price index: the Bank of Canada non-energy (BCNE) commodity prices and the West Texas Intermediate crude oil price. They present different methodologies to identify transitory and permanent components of movements in these prices. A structural vector autoregressive model is used for real BCNE prices and a multiple structural-break technique is employed for real crude oil prices. The authors use these transitory and permanent components to develop forecasting models. They assess various aspects of the models' performance. Their main results indicate that: (i) the world economic activity and real U.S.-dollar effective exchange rate explain much of the cyclical variation of real BCNE prices, (ii) real crude oil prices have two structural breaks over the sample period, and recently their link with the world economic activity has been quite strong, and (iii) the models outperform benchmark models, namely a vector autoregressive model, an autoregressive model, and a random-walk model, in terms of out-of-sample forecasting.

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File URL: http://www.bankofcanada.ca/en/res/wp/2003/wp03-24.pdf
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Paper provided by Bank of Canada in its series Working Papers with number 03-24.

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Length: 41 pages
Date of creation: 2003
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Handle: RePEc:bca:bocawp:03-24

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Keywords: Econometric and statistical methods;

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Find related papers by JEL classification:
C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  3. Eduardo Borensztein & Carmen Reinhart, 1994. "The Macroeconomic Determinants of Commodity Prices," IMF Working Papers 94/9, International Monetary Fund.
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  4. Harvey, A C, 1985. "Trends and Cycles in Macroeconomic Time Series," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(3), pages 216-27, June.
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  6. K. Newey, Whitney, 1985. "Generalized method of moments specification testing," Journal of Econometrics, Elsevier, vol. 29(3), pages 229-256, September. [Downloadable!] (restricted)
  7. Ben Hunt, 1995. "The effect of foreign demand shocks on the Canadian economy: An analysis using QPM," Bank of Canada Review, Bank of Canada, vol. 1995(Autumn), pages 23-32. [Downloadable!]
  8. Zivot, Eric & Andrews, Donald W K, 1992. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 251-70, July.
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  9. Reinhart, Carmen & Wickham, Peter, 1994. "Commodity Prices: Cyclical Weakness or Secular Decline?," MPRA Paper 8173, University Library of Munich, Germany. [Downloadable!]
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  10. Chong, Yock Y & Hendry, David F, 1986. "Econometric Evaluation of Linear Macro-Economic Models," Review of Economic Studies, Blackwell Publishing, vol. 53(4), pages 671-90, August. [Downloadable!] (restricted)
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  12. Hong Liang & John T. Cuddington, . "Will the Emergence of the Euro Affect World Commodity Prices?," IMF Working Papers 00/208, International Monetary Fund.
  13. John T. Cuddington & Hong Liang, 2000. "Will the Emergence of the Euro Affect World Commodity Prices?," Working Papers 00-01, Georgetown University, Department of Economics. [Downloadable!]
  14. Lalonde, René, 1998. "Le PIB potentiel des États-Unis et ses déterminants : la productivité de la main-d'oeuvre et le taux d'activité," Working Papers 98-13, Bank of Canada. [Downloadable!]
  15. Quah, Danny, 1992. "The Relative Importance of Permanent and Transitory Components: Identification and Some Theoretical Bounds," Econometrica, Econometric Society, vol. 60(1), pages 107-18, January. [Downloadable!] (restricted)
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  16. St-Amant, P. & van Norden, S., 1997. "Measurement of the Output Gap: A Discussion of Recent Research at the Bank of Canada," Technical Reports 79, Bank of Canada. [Downloadable!]
  17. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-56, July. [Downloadable!] (restricted)
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  18. Paul Cashin & C. John McDermott, 2001. "The Long-Run Behavior of Commodity Prices: Small Trends and Big Variability," IMF Working Papers 01/68, International Monetary Fund. [Downloadable!]
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Rene Lalonde & Dirk Muir, 2007. "The Bank of Canada's Version of the Global Economy Model (BoC-GEM)," Technical Reports 98, Bank of Canada. [Downloadable!]
  2. René Lalonde & Patrick Sabourin, 2003. "Modélisation et prévision du taux de change réel effectif américain," Working Papers 03-3, Bank of Canada. [Downloadable!]
  3. Giliola Frey & Matteo Manera & Anil Markandya & Elisa Scarpa, 2009. "Econometric Models for Oil Price Forecasting: A Critical Survey," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 10(1), pages 29-44, 04. [Downloadable!]
  4. Calista Cheung & Sylvie Morin, 2007. "The Impact of Emerging Asia on Commodity Prices," Working Papers 07-55, Bank of Canada. [Downloadable!]
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