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Forecasting Inflation using Commodity Price Aggregates

Listed author(s):
  • Yu-chin Chen
  • Stephen J. Turnovsky
  • Eric Zivot

This paper shows that for five small commodity-exporting countries that have adopted inflation targeting monetary policies, world commodity price aggregates have predictive power for their CPI and PPI inflation, particularly once possible structural breaks are taken into account. This conclusion is robust to using either disaggregated or aggregated commodity price indexes (although the former perform better), the currency denomination of the commodity prices, and to using mixed-frequency data. In pseudo out-of-sample forecasting, commodity indexes outperform the random walk and AR(1) processes, although the improvements over the latter are sometimes modest.

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File URL: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1935065
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Paper provided by University of Washington, Department of Economics in its series Working Papers with number UWEC-2011-14.

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Date of creation: Sep 2011
Handle: RePEc:udb:wpaper:uwec-2011-14
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Web page: http://www.econ.washington.edu/
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