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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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    Keywords

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    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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