This dissertation aims to analyze the effect of commodity price changes on exchange rates, and to test whether they are any good in predicting the exchange rate of several currencies against the US dollar. I compare the forecast performance of models that use commodity prices with that of a random walk model, and analyze which performs better, I also analyze an economic fundamentals model. This analysis is done both in-sample and out-of-sample. My results are positive, given that all models tested outperform the random walk model for the majority of the countries tested. It is also concluded that a model that uses only commodity prices is the best performer out-of-sample. A striking result is that, in this study, the economic fundamentals model outperforms the random walk, despite past research suggesting that there is no relationship between economic fundamentals and exchange rates.
|Date of Award||15 Oct 2020|
- Universidade Católica Portuguesa
|Supervisor||Ivan Alfaro (Supervisor)|
- Exchange rates
- International economics
- International finance