Noncausality and the Commodity Currency Hypothesis

20 Pages Posted: 24 Apr 2015 Last revised: 2 Sep 2018

See all articles by Matthijs Lof

Matthijs Lof

Aalto University

Henri Nyberg

University of Turku; Tampere University

Date Written: October 9, 2015

Abstract

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

Lof, Matthijs and Nyberg, Henri, Noncausality and the Commodity Currency Hypothesis (October 9, 2015). Energy Economics, 65, 424-433, (2017). Available at SSRN: https://ssrn.com/abstract=2597815 or http://dx.doi.org/10.2139/ssrn.2597815

Matthijs Lof (Contact Author)

Aalto University ( email )

P.O. Box 21210
Helsinki, 00101
Finland

HOME PAGE: http://sites.google.com/site/matthijslof/

Henri Nyberg

University of Turku ( email )

Turku, 20014
Finland

Tampere University ( email )

Tampere, FIN-33101
Finland

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