Tags: commodities

Rogoff: Currencies Predict Commodity Drop

Friday, 12 Sep 2008 01:40 PM

Former International Monetary Fund head Ken Rogoff and two fellow researchers say it's possible to predict commodity price movements by following the currency exchange rates of several countries that produce a lot of commodities.

The method — which tracks various "baskets" of commodities — now predicts a 6 percent to 12 percent decline in commodity prices over the third quarter of this year.

The idea is that commodity prices and exchange rates for these "commodity currencies" behave like financial assets, sticking close to each other, they wrote on economics blog VoxEU.org.

For instance, using data for Australia, Canada, Chile, New Zealand, and South Africa, Rogoff and his colleagues studied commodity market movements for the past 30 years.

Rogoff and his team say this works because both commodity prices and exchange rates are both based on investors' expectations of what future economic conditions will be, and not on what economic conditions are now.

As evidence that this method is successful, Rogoff points to the sharp drop in commodity prices at the end of June, when the research model and actual commodity prices were in almost precisely the same place.

"Individually, these exchange rates can forecast the prices of their country's major commodity exports. Together, they do an excellent good job at predicting aggregate commodity market movements," the researchers write.

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Former International Monetary Fund head Ken Rogoff and two fellow researchers say it's possible to predict commodity price movements by following the currency exchange rates of several countries that produce a lot of commodities.The method — which tracks various "baskets"...
commodities
216
2008-40-12
Friday, 12 Sep 2008 01:40 PM
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