Commodity prices, commodity currencies, and global economic developments

Arbeitspapier

In this paper, we seek to produce forecasts of commodity price movements that can systematically improve on naïve statistical benchmarks. We revisit how well changes in commodity currencies perform as potential efficient predictors of commodity prices, a view emphasized in the recent literature. In addition, we consider different types of factor-augmented models that use information from a large data set containing a variety of indicators of supply and demand conditions across major developed and developing countries. These factor-augmented models use either standard principal components or the more novel partial least squares (PLS) regression to extract dynamic factors from the data set. Our forecasting analysis considers ten alternative indices and sub-indices of spot prices for three different commodity classes across different periods. We find that, of all the approaches, the exchange-rate-based model and the PLS factor-augmented model are more likely to outperform the naïve statistical benchmarks, although PLS factor-augmented models usually have a slight edge over the exchange-rate-based approach. However, across our range of commodity price indices we are not able to generate out-of-sample forecasts that, on average, are systematically more accurate than predictions based on a random walk or autoregressive specifications.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Staff Report ; No. 387

Classification and Topics

• Classification: Wirtschaft ; Single Equation Models; Single Variables: Panel Data Models; Spatio-temporal Models ; Forecasting Models; Simulation Methods ; Macroeconomic Aspects of International Trade and Finance: Forecasting and Simulation: Models and Applications
• Subject: Commodity prices ; forecasting ; exchange rates ; factor models ; PLS regression ; Rohstoffpreis ; Preisindex ; Wechselkurs ; Wirtschaftswachstum ; Entwicklung ; Welt

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Groen, Jan J. J. ; Pesenti, Paolo A.
• Event: Veröffentlichung
• (who): Federal Reserve Bank of New York
• (where): New York, NY
• (when): 2009

Further information

• Handle: http://hdl.handle.net/10419/60738
• Last update: 10.03.2025, 11:42 AM CET