IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this book chapter or follow this series

Commodity Prices, Commodity Currencies, and Global Economic Developments

In: Commodity Prices and Markets, East Asia Seminar on Economics, Volume 20

  • Jan J. J. Groen
  • Paolo A. Pesenti

In this paper we seek to produce forecasts of commodity price movements that can systematically improve on naive statistical benchmarks, and revisit the forecasting performance of changes in commodity currencies as efficient predictors of commodity prices, a view emphasized in the recent literature. In addition, we consider different types of factor-augmented models that use information from a large data set containing a variety of indicators of supply and demand conditions across major developed and developing countries. These factor-augmented models use either standard principal components or partial least squares (PLS) regression to extract dynamic factors from the data set. Our forecasting analysis considers ten alternative indices and sub-indices of spot prices for three different commodity classes across different periods. We .find that the exchange rate-based model and especially the PLS factor-augmented model are more prone to outperform the naive statistical benchmarks. However, across our range of commodity price indices we are not able to generate out-of-sample forecasts that, on average, are systematically more accurate than predictions based on a random walk or autoregressive specifications.

(This abstract was borrowed from another version of this item.)

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.nber.org/chapters/c11856.pdf
Download Restriction: no

as
in new window

This chapter was published in:
  • Takatoshi Ito & Andrew K. Rose, 2011. "Commodity Prices and Markets, East Asia Seminar on Economics, Volume 20," NBER Books, National Bureau of Economic Research, Inc, number ito_09-1, October.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 11856.
    Handle: RePEc:nbr:nberch:11856
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
    Phone: 617-868-3900
    Web page: http://www.nber.org
    Email:


    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Aasim M. Husain & Chakriya Bowman, 2004. "Forecasting Commodity Prices; Futures Versus Judgment," IMF Working Papers 04/41, International Monetary Fund.
    2. Todd E. Clark & Kenneth D. West, 2005. "Approximately normal tests for equal predictive accuracy in nested models," Research Working Paper RWP 05-05, Federal Reserve Bank of Kansas City.
    3. Selim Elekdag & Rene Lalonde & Douglas Laxton & Dirk Muir & Paolo Pesenti, 2008. "Oil Price Movements and the Global Economy: A Model-Based Assessment," NBER Working Papers 13792, National Bureau of Economic Research, Inc.
    4. Todd E. Clark & Kenneth D. West, 2004. "Using out-of-sample mean squared prediction errors to test the Martingale difference hypothesis," Research Working Paper RWP 04-03, Federal Reserve Bank of Kansas City.
    5. Jan J. J. Groen & George Kapetanios, 2008. "Revisiting useful approaches to data-rich macroeconomic forecasting," Staff Reports 327, Federal Reserve Bank of New York.
    6. Margaret E. Slade & Henry Thille, 2006. "Commodity Spot Prices: An Exploratory Assessment of Market Structure and Forward-Trading Effects," Economica, London School of Economics and Political Science, vol. 73(290), pages 229-256, 05.
    7. Yu-chin Chen & Kenneth Rogoff & Barbara Rossi, 2008. "Can Exchange Rates Forecast Commodity Prices?," Working Papers UWEC-2008-11-FC, University of Washington, Department of Economics, revised Oct 2009.
    8. Reinhart, Carmen & Borensztein, Eduardo, 1994. "The determinants of commodity prices," MPRA Paper 13870, University Library of Munich, Germany.
    9. Jean Boivin & Serena Ng, 2003. "Are More Data Always Better for Factor Analysis?," NBER Working Papers 9829, National Bureau of Economic Research, Inc.
    10. Q. Farooq Akram, 2008. "Commodity prices, interest rates and the dollar," Working Paper 2008/12, Norges Bank.
    11. Kilian, Lutz, 2006. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," CEPR Discussion Papers 5994, C.E.P.R. Discussion Papers.
    12. Reinhart, Carmen, 1988. "Real Exchange Rate and Commodity Prices in a Neoclassical Model," MPRA Paper 13188, University Library of Munich, Germany.
    13. Jan J. J. Groen & George Kapetanios, 2009. "Model selection criteria for factor-augmented regressions," Staff Reports 363, Federal Reserve Bank of New York.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:nbr:nberch:11856. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.