Predicting Agri-Commodity Prices: An Asset Pricing Approach
University of Washington - Department of Economics
Harvard University - Department of Economics; National Bureau of Economic Research (NBER)
Universitat Pompeu Fabra - ICREA; Barcelona Graduate School of Economics; Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI)
May 10, 2010
Volatile and rising agricultural prices put significant strain on the global fight against poverty. An accurate reading of future food price movements can be an invaluable budgetary planning tool for various government agencies and food aid programs. Using the asset-pricing approach developed in Chen, Rogoff and Rossi (2010), we show that information from the currency and equity markets of several major commodity-exporting economies can help forecast world agricultural prices. Our formulation builds upon the notion that world commodity prices play a significant role in determining these countries' currency and equity valuations, so market participants would price expected future commodity price movements into the current values of these assets. Because the exchange rate and equity markets are typically much more fluid than the agri-commodity markets (where prices tend to be more constrained by current supply and demand conditions), these asset prices can signal future agricultural price dynamics beyond information contained in the agri-commodity prices themselves. Our findings complement forecast methods based on structural factors such as supply, demand, and storage considerations.
Number of Pages in PDF File: 45
Keywords: ommodity prices, exchange rates, equity prices, forecasting
JEL Classification: C52, C53, F31, F47working papers series
Date posted: May 28, 2010
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