Title: Noncausality and the commodity currency hypothesis
Authors: Henri Nyberg - University of Turku and University of Helsinki (Finland) [presenting]
Matthijs Lof - Aalto University (Finland)
Abstract: New evidence is provided on the role of exchange rates in forecasting commodity prices. Consistent with previous studies, we find that commodity currencies hold out-of-sample predictive power for commodity prices when using standard linear predictive regressions. After, we reconsider the evidence using noncausal autoregressions, which provide a better fit to the data and are able to accommodate the effects of nonlinearities and omitted variables, the predictive power of exchange rates disappears.