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Aluminium market and the macroeconomy

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  • Melisso Boschi
  • Luca Pieroni

Abstract

We propose and test a structural model of the interaction between the aluminium market and the macroeconomy incorporating the rational expectations hypothesis. Based on a competition à la Cournot, our model predicts that aluminium spot price and inventories will respond to macroeconomic shocks to line up supply to the demand level. The model also includes incomplete adjustments to shocks that occur near the delivery date of futures contracts with the implication of a likely high persistence in the aluminium spot price. Estimation results show that the aluminium price is significantly affected by the real exchange rate, while the influence of the real interest rate is small. We argue that this result is largely expected once we consider the peculiar features of the aluminium market. Further support to this view is provided by the large persistence of the aluminium price response to its own shock and by the negligible contribution of stockholdings innovations to the price forecast error variance. Finally, macroeconomic shocks explain on the whole a relevant share of the aluminium market variables forecast error variance.

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Bibliographic Info

Paper provided by Università di Perugia, Dipartimento Economia, Finanza e Statistica in its series Quaderni del Dipartimento di Economia, Finanza e Statistica with number 42/2008.

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Length: 40 pages
Date of creation: 01 Jan 2008
Date of revision:
Handle: RePEc:pia:wpaper:42/2008

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Keywords: Metal commodities; Monetary transmission mechanism; Rational Expectations Hypothesis test; SVAR;

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References

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  1. Clarida, Richard & Galí, Jordi, 1994. "Sources of Real Exchange Rate Fluctuations: How Important are Nominal Shocks?," CEPR Discussion Papers 951, C.E.P.R. Discussion Papers.
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  7. John B. Taylor, 1995. "The monetary transmission mechanism: an empirical framework," Working Papers in Applied Economic Theory 95-07, Federal Reserve Bank of San Francisco.
  8. Gilbert, Christopher L, 1995. "Modelling Market Fundamentals: A Model of the Aluminum Market," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(4), pages 385-410, Oct.-Dec..
  9. Gilbert, Christopher L, 1989. "The Impact of Exchange Rates and Developing Country Debt on Commodity Prices," Economic Journal, Royal Economic Society, vol. 99(397), pages 773-84, September.
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  13. Powell, Andrew, 1993. "Trading Forward in an Imperfect Market: The Case of Electricity in Britain," Economic Journal, Royal Economic Society, vol. 103(417), pages 444-53, March.
  14. Jeffrey A. Frankel, 2006. "The Effect of Monetary Policy on Real Commodity Prices," NBER Working Papers 12713, National Bureau of Economic Research, Inc.
  15. Frankel, Jeffrey, 2003. "A Proposed Monetary Regime for Small Commodity-Exporters: Peg the Export Price ("PEP")," Working Paper Series rwp03-003, Harvard University, John F. Kennedy School of Government.
  16. Jeffrey A. Frankel, 1995. "Financial Markets and Monetary Policy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061740, December.
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Cited by:
  1. Damiani, Mirella & Pompei, Fabrizio & Ricci, Andrea, 2011. "Temporary job protection and productivity growth in EU economies," MPRA Paper 29698, University Library of Munich, Germany.
  2. Stefano Herzel, Stefano & Marco Nicolosi, Marco & Starica, Catalin, 2010. "The cost of sustainability on optimal portfolio choices," Sustainable Investment and Corporate Governance Working Papers 2010/15, Sustainable Investment Research Platform.
  3. Marco Lombardi & Chiara Osbat & Bernd Schnatz, 2012. "Global commodity cycles and linkages: a FAVAR approach," Empirical Economics, Springer, vol. 43(2), pages 651-670, October.
  4. Mirella Damiani, 2010. "Labour regulation, corporate governance and varieties of capitalism," Quaderni del Dipartimento di Economia, Finanza e Statistica 76/2010, Università di Perugia, Dipartimento Economia, Finanza e Statistica.
  5. Davide Castellani & Fabio Pieri, 2011. "Foreign Investments and Productivity Evidence from European Regions," Quaderni del Dipartimento di Economia, Finanza e Statistica 83/2011, Università di Perugia, Dipartimento Economia, Finanza e Statistica.
  6. Silvia Micheli, 2010. "Learning Curve and Wind Power," Quaderni del Dipartimento di Economia, Finanza e Statistica 81/2010, Università di Perugia, Dipartimento Economia, Finanza e Statistica.
  7. Francesco Venturini, 2011. "Product variety, product quality, and evidence of Schumpeterian endogenous growth: a note," Quaderni del Dipartimento di Economia, Finanza e Statistica 93/2011, Università di Perugia, Dipartimento Economia, Finanza e Statistica.

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