To read this content please select one of the options below:

Commodity prices and exchange rates: evidence from commodity-dependent developed and emerging economies

Saba Haider (Department of Management Sciences, COMSATS University Islamabad–Lahore Campus, Lahore, Pakistan)
Mian Sajid Nazir (Institute if Administrative Sciences, University of the Punjab, Lahore, Pakistan) (HEC Montréal, Univeristé de Montréal, Montréal, Canada)
Alfredo Jiménez (Department of Management, Kedge Business School, Talence, France)
Muhammad Ali Jibran Qamar (COMSATS University Islamabad–Lahore Campus, Lahore, Pakistan)

International Journal of Emerging Markets

ISSN: 1746-8809

Article publication date: 29 April 2021

Issue publication date: 2 January 2023

264

Abstract

Purpose

In this paper the authors examine evidence on exchange rate predictability through commodity prices for a set of countries categorized as commodity import- and export-dependent developed and emerging countries.

Design/methodology/approach

The authors perform in-sample and out-of-sample forecasting analysis. The commodity prices are modeled to predict the exchange rate and to analyze whether this commodity price model can perform better than the random walk model (RWM) or not. These two models are compared and evaluated in terms of exchange rate forecasting abilities based on mean squared forecast error and Theil inequality coefficient.

Findings

The authors find that primary commodity prices better predict exchange rates in almost two-thirds of export-dependent developed countries. In contrast, the RWM shows superior performance in the majority of export-dependent emerging, import-dependent emerging and developed countries.

Originality/value

Previous studies examined the exchange rate of commodity export-dependent developed countries mainly. This study examines both developed and emerging countries and finds for which one the changes in prices of export commodities (in case of commodity export-dependent country) or prices of major importing commodities (in case of import-dependent countries) can significantly predict the exchange rate.

Keywords

Citation

Haider, S., Nazir, M.S., Jiménez, A. and Jibran Qamar, M.A. (2023), "Commodity prices and exchange rates: evidence from commodity-dependent developed and emerging economies", International Journal of Emerging Markets, Vol. 18 No. 1, pp. 241-271. https://doi.org/10.1108/IJOEM-08-2020-0954

Publisher

:

Emerald Publishing Limited

Copyright © 2021, Emerald Publishing Limited

Related articles