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Noncausality and the commodity currency hypothesis

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  • Lof, Matthijs
  • Nyberg, Henri

Abstract

This paper provides new evidence on the role of exchange rates in forecasting commodity prices. Consistent with previous studies, we find that commodity currencies hold out-of-sample predictive power for commodity prices when using standard linear predictive regressions. After we reconsider the evidence using noncausal autoregressions, which provide a better fit to the data and are able to accommodate the effects of nonlinearities and omitted variables, the predictive power of exchange rates disappears.

Suggested Citation

  • Lof, Matthijs & Nyberg, Henri, 2017. "Noncausality and the commodity currency hypothesis," Energy Economics, Elsevier, vol. 65(C), pages 424-433.
  • Handle: RePEc:eee:eneeco:v:65:y:2017:i:c:p:424-433
    DOI: 10.1016/j.eneco.2017.05.024
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    Cited by:

    1. Hecq A.W. & Lieb L.M. & Telg J.M.A., 2015. "Identification of Mixed Causal-Noncausal Models : How Fat Should We Go?," Research Memorandum 035, Maastricht University, Graduate School of Business and Economics (GSBE).
    2. Markku Lanne & Henri Nyberg, 2015. "Nonlinear dynamic interrelationships between real activity and stock returns," CREATES Research Papers 2015-36, Department of Economics and Business Economics, Aarhus University.
    3. Pincheira, Pablo & Hardy, Nicolas, 2018. "Forecasting Base Metal Prices with Commodity Currencies," MPRA Paper 83564, University Library of Munich, Germany.
    4. Pincheira, Pablo & Hardy, Nicolas, 2018. "The predictive relationship between exchange rate expectations and base metal prices," MPRA Paper 89423, University Library of Munich, Germany.
    5. Jose Eduardo Gomez-Gonzalez & Jorge Hirs-Garzon & Jorge M. Uribe, 2017. "Dynamic Connectedness and Causality between Oil prices and Exchange Rates," Borradores de Economia 1025, Banco de la Republica de Colombia.

    More about this item

    Keywords

    Commodity prices; Exchange rates; Noncausal autoregression; Nonlinearity;

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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