COMMODITY PRICES, CONVENIENCE YIELDS, AND INFLATION

This paper provides evidence that the two leading principal components in a panel of 23 commodity convenience yields have statistically and quantitatively important predictive power for inflation even after controlling for unemployment gap and oil prices. The results hold up in out-of-sample forecas...

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Bibliographic Details
Published in:The review of economics and statistics 2013-03, Vol.95 (1), p.206-219
Main Authors: Gospodinov, Nikolay, Ng, Serena
Format: Article
Language:English
Subjects:
Analytical forecasting
Commodities
Commodity futures
Commodity prices
Confidence interval
Consumer Price Index
Economic conditions
Economic inflation
Exchange rates
Industrialized nations
Inflation
Modeling
Prices
Principal components analysis
Studies
Yield
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Summary:This paper provides evidence that the two leading principal components in a panel of 23 commodity convenience yields have statistically and quantitatively important predictive power for inflation even after controlling for unemployment gap and oil prices. The results hold up in out-of-sample forecasts, across forecast horizons, and across G7 countries. The convenience yields also explain commodity prices and can be seen as informational variables about future economic conditions as conveyed by the futures markets. A bootstrap procedure for conducting inference when the principal components are used as regressors is also proposed.
ISSN:0034-6535
1530-9142
DOI:10.1162/rest_a_00242