Forecasting Aluminum Prices with Commodity Currencies
21 Pages Posted: 16 Jan 2020
Date Written: November 30, 2019
In this paper we show that the exchange rates of some commodity exporter countries have the ability to predict the price of spot and future contracts of aluminum. This is shown with both insample and out-of-sample analyses. The theoretical underpinning of these results relies on the present-value model for exchange rate determination and on the tight connection between commodity prices and the currencies of commodity exporter countries. We show results using traditional statistical metrics of forecast accuracy: Mean Squared Prediction Error and Mean Directional Accuracy. We also show that the first principal component of our sample of exchange rates is a useful way to summarize the predictive information contained in our set of commodity currencies.
Keywords: Forecasting, commodities, aluminum, univariate time-series models, out-of-sample comparison, exchange rates
JEL Classification: C52, C53, G17, E270, E370, F370, L740, O180, R310
Suggested Citation: Suggested Citation