Noncausality and the Commodity Currency Hypothesis
20 Pages Posted: 24 Apr 2015 Last revised: 2 Sep 2018
Date Written: October 9, 2015
This paper provides new evidence on the role of exchange rates in forecasting commodity prices. Consistent with previous studies, we find that commodity currencies hold out-of-sample predictive power for commodity prices when using standard linear predictive regressions. After we reconsider the evidence using noncausal autoregressions, which provide a better fit to the data and are able to accommodate the effects of nonlinearities and omitted variables, the predictive power of exchange rates disappears.
Keywords: Commodity prices, exchange rates, noncausal autoregression, nonlinearity
JEL Classification: C53, F37, Q02
Suggested Citation: Suggested Citation