TY  - JOUR
AU  - Chen,Yu-Chin
AU  - Rogoff,Kenneth
AU  - Rossi,Barbara
TI  - Can Exchange Rates Forecast Commodity Prices?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13901
PY  - 2008
Y2  - March 2008
UR  - http://www.nber.org/papers/w13901
L1  - http://www.nber.org/papers/w13901.pdf
N1  - Author contact info:
Yu-Chin Chen
Department of Economics
338 Savery Hall, Box 353330
University of Washington
Seattle, WA 98195-3330
Tel: 425-686-8617
E-Mail: yuchin@u.washington.edu

Kenneth S. Rogoff
Thomas D Cabot Professor of Public Policy
Economics Department
Harvard University
Littauer Center 216
Cambridge, MA 02138-3001
Tel: 617-495-4022
Fax: 617/495-7730
E-Mail: krogoff@harvard.edu

Barbara Rossi
Department of Economics
Duke University
PO Box 90097
213 Social Sciences Building
Durham, NC 27708
E-Mail: brossi@econ.duke.edu
AB  - We show that "commodity currency" exchange rates have remarkably robust power in predicting global commodity prices, both in-sample and out-of-sample, and against a variety of alternative benchmarks. This result is of particular interest to policymakers, given the lack of deep forward markets in many individual commodities, and broad aggregate commodity indices in particular. We also explore the reverse relationship (commodity prices forecasting exchange rates) but find it to be notably less robust. We offer a theoretical resolution, based on the fact that exchange rates are strongly forward looking, whereas commodity price fluctuations are typically more sensitive to short-term demand imbalances.
ER  -