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Commodity Prices and Markets$
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Takatoshi Ito and Andrew K. Rose

Print publication date: 2011

Print ISBN-13: 9780226386898

Published to Chicago Scholarship Online: February 2013

DOI: 10.7208/chicago/9780226386904.001.0001

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Commodity Prices, Commodity Currencies, and Global Economic Developments

Commodity Prices, Commodity Currencies, and Global Economic Developments

(p.15) 1 Commodity Prices, Commodity Currencies, and Global Economic Developments
Commodity Prices and Markets

Jan J.J. Groen

Paolo A. Pesenti

University of Chicago Press

This chapter discusses commodity prices, commodity currencies, and global economic developments. A synthetic survey of the different arguments used to rationalize and predict shifts in commodity prices is presented. The Cash Reserve Ratio (CRR) provides a systematic attempt to document and test the forecasting properties of a small set of commodity currencies as explanatory variables, with surprisingly promising results both in-sample and out-of-sample. For one specific commodity index, at the shortest forecasting horizons, the predictions of an exchange rate-based model are significantly better than those based on a random walk, although they do not outperform an autoregressive specification and at the one-year ahead horizon, the performance is reverted, as the CRR model significantly outperforms the autoregressive benchmark but not the random walk. It is observed that across commodity indices one cannot generate forecasts that are, on average, structurally more accurate and robust than those based on a random walk or autoregressive specifications.

Keywords:   commodity prices, Cash Reserve Ratio, CRR, commodity currencies, commodity indices, global economic developments

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