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Commodity-currencies or currency-commodities: Evidence from causality tests

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  • Belasen, Ariel R.
  • Demirer, Rıza

Abstract

This paper presents a comparative analysis of the return and volatility spillovers across the commodity and currency markets for an expanded set of commodity-exporters and currencies that includes several emerging commodity-exporting nations in addition to the developed exporters that have often been the focus in the literature. Strong causal effects are observed, largely in the direction of commodities from currencies with several cases of bidirectional causality, particularly between gold and the New Zealand dollar, Brent oil and the Brazilian real, and copper and the Chilean peso. The causal effects from currencies to commodities are not only limited to return causality, but exist in the case of volatility as well, implying the presence of significant risk transmissions from currencies. We also show that causal effects from currencies to commodities have become more widespread during the period following the 2007–2008 global financial crisis. Overall, our findings imply that currency market dynamics have informative value for commodity return and volatility with significant implications for volatility forecasting and active management of commodity price fluctuations.

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  • Belasen, Ariel R. & Demirer, Rıza, 2019. "Commodity-currencies or currency-commodities: Evidence from causality tests," Resources Policy, Elsevier, vol. 60(C), pages 162-168.
    • Handle: RePEc:eee:jrpoli:v:60:y:2019:i:c:p:162-168
    DOI: 10.1016/j.resourpol.2018.12.015
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    More about this item

    Keywords

    Commodity currency; Exchange rates; Volatility transmission; Causality tests;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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