Pincheira, Pablo and Hardy, Nicolas (2018): Forecasting Base Metal Prices with Commodity Currencies.
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Abstract
In this paper we show that the Chilean exchange rate has the ability to predict the returns of the London Metal Exchange Index and of the six primary non-ferrous metals that are part of the index: aluminum, copper, lead, nickel, tin and zinc. The economic relationship hinges on the present-value theory for exchange rates, a floating exchange rate regime and the fact that copper represents about a half of Chilean exports and nearly 45% of Foreign Direct Investment. Consequently, the Chilean peso is heavily affected by fluctuations in the copper price. As all six base metal prices show an important comovement, we test whether the relationship between copper prices and Chilean exchange rates also holds true when it comes to the six primary non-ferrous metals. We find interesting evidence of predictability both in-sample and out-of-sample. Our paper is part of a growing literature that in the recent years has evaluated and called into question the ability of commodity currencies to forecast commodity prices.
Item Type: | MPRA Paper |
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Original Title: | Forecasting Base Metal Prices with Commodity Currencies |
English Title: | Forecasting Base Metal Prices with Commodity Currencies |
Language: | English |
Keywords: | Forecasting, commodities prices, univariate time-series models, out-of-sample comparison, exchange rates, copper, primary non-ferrous metals. |
Subjects: | E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E37 - Forecasting and Simulation: Models and Applications E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy F - International Economics > F0 - General F - International Economics > F0 - General > F00 - General F - International Economics > F0 - General > F01 - Global Outlook F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment ; Long-Term Capital Movements F - International Economics > F3 - International Finance > F31 - Foreign Exchange F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F47 - Forecasting and Simulation: Models and Applications G - Financial Economics > G1 - General Financial Markets G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets G - Financial Economics > G1 - General Financial Markets > G17 - Financial Forecasting and Simulation Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q3 - Nonrenewable Resources and Conservation Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q3 - Nonrenewable Resources and Conservation > Q32 - Exhaustible Resources and Economic Development Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q41 - Demand and Supply ; Prices Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q47 - Energy Forecasting |
Item ID: | 83564 |
Depositing User: | Pablo Matías Pincheira |
Date Deposited: | 02 Jan 2018 23:06 |
Last Modified: | 26 Sep 2019 14:52 |
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URI: | https://mpra.ub.uni-muenchen.de/id/eprint/83564 |