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How Easy Is It to Forecast Commodity Prices?

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Abstract

Over the last decade, unprecedented spikes and drops in commodity prices have been a recurrent source of concern to both policymakers and the general public. Given all the recent attention, have economists and analysts made any progress in their ability to predict movements in commodity prices? In this post, we find there is no easy answer. We consider different strategies to forecast near-term commodity price inflation, but find that no particular approach is systematically more accurate and robust. Additionally, the results warn against interpreting current forecasts of commodity prices upswings as reliable and dependable signals of future inflationary pressure.

Suggested Citation

  • Jan J. J. Groen & Paolo Pesenti, 2011. "How Easy Is It to Forecast Commodity Prices?," Liberty Street Economics 20110627, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:86752
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    More about this item

    Keywords

    commodity prices; PLS regression; forecasting; exchange rates; factor models;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • F00 - International Economics - - General - - - General

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