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Commodity Prices, Convenience Yields, and Inflation

Author

Listed:
  • Nikolay Gospodinov

    (Concordia University and CIREQ)

  • Serena Ng

    (Columbia University)

Abstract

This paper provides evidence that the two leading principal components in a panel of 23 commodity convenience yields have statistically and quantitatively important predictive power for inflation even after controlling for unemployment gap and oil prices. The results hold up in out-of-sample forecasts, across forecast horizons, and across G7 countries. The convenience yields also explain commodity prices and can be seen as informational variables about future economic conditions as conveyed by the futures markets. A bootstrap procedure for conducting inference when the principal components are used as regressors is also proposed. © 2013 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Nikolay Gospodinov & Serena Ng, 2013. "Commodity Prices, Convenience Yields, and Inflation," The Review of Economics and Statistics, MIT Press, vol. 95(1), pages 206-219, March.
  • Handle: RePEc:tpr:restat:v:95:y:2013:i:1:p:206-219
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    Keywords

    bootstrap principal components; commodity futures; inflation predictability;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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