Summary of the Paper Entitled: Forecasting Fuel Prices with the Chilean Exchange Rate

14 Pages Posted: 3 Mar 2021

See all articles by Pablo M. Pincheira

Pablo M. Pincheira

Adolfo Ibanez University - School of Business

Nabil Jarsun

affiliation not provided to SSRN

Date Written: December 30, 2020

Abstract

This draft is a summary of the paper entitled: Forecasting Fuel Prices with the Chilean Exchange Rate. In that paper we show that the Chilean exchange rate has the ability to predict the returns of oil prices and of three additional oil-related products: gasoline, propane and heating oil. The theoretical underpinnings of our empirical findings rely on the present-value theory for exchange rate determination and on the strong co-movement displayed by some commodity prices. The Chilean economy is heavily influenced by one particular commodity: copper, which represents nearly 50% of total national exports and attracts a similar share in terms of Foreign Direct Investment. As a consequence, the floating Chilean exchange rate is importantly affected by fluctuations in the copper price. As oil-related products display an important co-movement with base metal prices, it is reasonable to expect evidence of Granger causality from the Chilean peso to these oil-related products. We find substantial evidence of predictability both in-sample and out-of-sample. Our paper is part of a growing literature that in the recent years has explored the linkages between commodity prices and commodity currencies.

Keywords: Exchange rates, energy, oil, gasoline, commodity prices, predictability, time-series

JEL Classification: C52, C53, C22, C32, E17, E27, E37, E51, E58, F31, F37, F47, G12, Q30, Q41, Q43, Q47

Suggested Citation

Pincheira, Pablo M. and Jarsun, Nabil, Summary of the Paper Entitled: Forecasting Fuel Prices with the Chilean Exchange Rate (December 30, 2020). Available at SSRN: https://ssrn.com/abstract=3757698 or http://dx.doi.org/10.2139/ssrn.3757698

Pablo M. Pincheira (Contact Author)

Adolfo Ibanez University - School of Business ( email )

Diagonal Las Torres 2640
Peñalolén
Santiago
Chile

Nabil Jarsun

affiliation not provided to SSRN

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
15
Abstract Views
242
PlumX Metrics