48 Pages Posted: 1 Oct 2011
Date Written: September 28, 2011
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 processes, although the improvements over the latter are sometimes modest.
Keywords: commodity prices, inflation forecasts, inflation targeting
JEL Classification: C53, E61, F31, F47
Suggested Citation: Suggested Citation
Chen, Yu-Chin and Turnovsky, Stephen J. and Zivot, Eric, Forecasting Inflation Using Commodity Price Aggregates (September 28, 2011). Available at SSRN: https://ssrn.com/abstract=1935065 or http://dx.doi.org/10.2139/ssrn.1935065