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Rational expectations and commodity price forecasts

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  • Boum-Jong Choe

Abstract

The main purpose of this paper is to take a new look at the commodity market (CM) price forecasts in light of recent investigations. The CM forecasts are similar in nature to the survey expectations in that both solicit market experts'opinions about future price developments. However, there are important differences: CM forecasts are more of the consensus-type forecasts than survey data and deal with physical goods that are subject to different risks and constraints. The characteristics of the CM forecasts are reviewed in relation to the futures prices of the same commodities. This paper also estimates the alternative expectational models and tests the rationality of the expectational behavior.

Suggested Citation

  • Boum-Jong Choe, 1990. "Rational expectations and commodity price forecasts," Policy Research Working Paper Series 435, The World Bank.
  • Handle: RePEc:wbk:wbrwps:435
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    References listed on IDEAS

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    1. Hansen, Lars Peter & Hodrick, Robert J, 1980. "Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis," Journal of Political Economy, University of Chicago Press, vol. 88(5), pages 829-853, October.
    2. Warr, Peter G., 1990. "Predictive performance of the World Bank's commodity price projections," Agricultural Economics, Blackwell, vol. 4(3-4), pages 365-379, December.
    3. Kenneth A. Froot & Jeffrey A. Frankel, 1989. "Forward Discount Bias: Is it an Exchange Risk Premium?," The Quarterly Journal of Economics, Oxford University Press, vol. 104(1), pages 139-161.
    4. Lewis, Karen K, 1989. "Changing Beliefs and Systematic Rational Forecast Errors with Evidence from Foreign Exchange," American Economic Review, American Economic Association, vol. 79(4), pages 621-636, September.
    5. Gregory Mankiw, N. & Shapiro, Matthew D., 1986. "Do we reject too often? : Small sample properties of tests of rational expectations models," Economics Letters, Elsevier, vol. 20(2), pages 139-145.
    6. Benjamin M. Friedman, 1980. "Survey Evidence on The Rationality of Interest Rate Expectations," NBER Working Papers 0261, National Bureau of Economic Research, Inc.
    7. Leonard, Jonathan S, 1982. "Wage Expectations in the Labor Market: Survey Evidence on Rationality," The Review of Economics and Statistics, MIT Press, vol. 64(1), pages 157-161, February.
    8. Figlewski, Stephen & Wachtel, Paul, 1981. "The Formation of Inflationary Expectations," The Review of Economics and Statistics, MIT Press, vol. 63(1), pages 1-10, February.
    9. Dominguez, Kathryn M., 1986. "Are foreign exchange forecasts rational? : New evidence from survey data," Economics Letters, Elsevier, vol. 21(3), pages 277-281.
    10. Dokko, Yoon & Edelstein, Robert H, 1989. "How Well Do Economists Forecast Stock Market Prices? A Study of the Livingston Surveys," American Economic Review, American Economic Association, vol. 79(4), pages 865-871, September.
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    Citations

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    Cited by:

    1. Jeffrey A. Frankel, 2008. "The Effect of Monetary Policy on Real Commodity Prices," NBER Chapters,in: Asset Prices and Monetary Policy, pages 291-333 National Bureau of Economic Research, Inc.
    2. Walter C. Labys, 2003. "New Directions in the Modeling and Forecasting of Commodity Markets," Mondes en développement, De Boeck Université, vol. 122(2), pages 3-19.
    3. Frankel, Jeffrey A., 2014. "Effects of speculation and interest rates in a “carry trade” model of commodity prices," Journal of International Money and Finance, Elsevier, vol. 42(C), pages 88-112.
    4. Boum-Jong Choe, 1990. "Commodity price forecasts and futures prices," Policy Research Working Paper Series 436, The World Bank.

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