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Using Common Features to Understand the Behavior of Metal-Commodity Prices and Forecast them at Different Horizons

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  • Issler, João Victor
  • Rodrigues, Claudia
  • Burjack, Rafael

Abstract

The objective of this article is to study (understand and forecast) spotmetal price levels and changes at monthly, quarterly, and annual horizons.The data to be used consists of metal-commodity prices in a monthly frequencyfrom 1957 to 2012 from the International Financial Statistics of the IMF onindividual metal series. We will also employ the (relatively large) list of co-variates used in Welch and Goyal (2008) and in Hong and Yogo (2009) , whichare available for download. Regarding short- and long-run comovement, we willapply the techniques and the tests proposed in the common-feature literature tobuild parsimonious VARs, which possibly entail quasi-structural relationshipsbetween different commodity prices and/or between a given commodity priceand its potential demand determinants. These parsimonious VARs will be laterused as forecasting models to be combined to yield metal-commodity pricesoptimal forecasts. Regarding out-of-sample forecasts, we will use a variety of models (linear and non-linear, single equation and multivariate) and a varietyof co-variates to forecast the returns and prices of metal commodities. Withthe forecasts of a large number of models (N large) and a large number of timeperiods (T large), we will apply the techniques put forth by the common-featureliterature on forecast combinations.

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Paper provided by FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil) in its series Economics Working Papers (Ensaios Economicos da EPGE) with number 736.

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Date of creation: 03 Jan 2013
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Handle: RePEc:fgv:epgewp:736

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Cited by:
  1. John Baffes & Damir Cosic, 2014. "Global Economic Prospects : Commodity Markets Outlook, January 2014," World Bank Publications, The World Bank, The World Bank, number 18996, February.

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