Forecasting inflation using commodity price aggregates

This paper shows that for five small commodity-exporting countries that have adopted inflation targeting monetary policies, world commodity price aggregates have predictive power for their CPI and PPI inflation, particularly once possible structural breaks are taken into account. This conclusion is...

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Bibliographic Details
Published in:Journal of econometrics 2014-11, Vol.183 (1), p.117-134
Main Authors: Chen, Yu-chin, Turnovsky, Stephen J., Zivot, Eric
Format: Article
Language:English
Subjects:
Commodities
Commodity prices
Consumer Price Index
CPI and PPI inflation forecasts
Econometrics
Economic theory
Estimating techniques
Forecasting techniques
Frequency
Inflation
Inflation targeting
Monetary policy
Studies
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Summary:This paper shows that for five small commodity-exporting countries that have adopted inflation targeting monetary policies, world commodity price aggregates have predictive power for their CPI and PPI inflation, particularly once possible structural breaks are taken into account. This conclusion is robust to using either disaggregated or aggregated commodity price indexes (although the former perform better), the currency denomination of the commodity prices, and to using mixed-frequency data. In pseudo out-of-sample forecasting, commodity indexes outperform the random walk and AR(1) processes, although the improvements over the latter are sometimes modest.
ISSN:0304-4076
1872-6895
DOI:10.1016/j.jeconom.2014.06.013