World Commodity Prices as a Forecasting Tool for Retail Prices: Evidence from the United Kingdom

García-Herrero, Alicia

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World Commodity Prices as a Forecasting Tool for Retail Prices: Evidence from the United Kingdom

IMF Working Paper No. 97/70

15 Pages Posted: 15 Feb 2006

See all articles by Alicia García-Herrero

Alicia García-Herrero

Bruegel; Hong Kong University of Science & Technology (HKUST) - HKUST Institute for Emerging Market Studies (IEMS); Natixis

Date Written: June 1997

Abstract

This paper investigates, using cointegration and Granger-causality techniques, whether a stable long-run co-movement exists between world commodity prices and U.K. retail prices, and whether short-run changes in commodity prices convey information about future movements in U.K. retail prices. The results show noncointegration and no unidirectional Granger causality from commodity to retail prices. These findings suggest that little may be gained from using developments in commodity prices to forecast movements in retail prices in the inflation-targeting framework followed by the U.K. monetary authorities.

Keywords: Commodity prices, monetary policy, United Kingdom

JEL Classification: E30, E52

Suggested Citation: Suggested Citation

Garcia-Herrero, Alicia, World Commodity Prices as a Forecasting Tool for Retail Prices: Evidence from the United Kingdom (June 1997). IMF Working Paper No. 97/70, Available at SSRN: https://ssrn.com/abstract=882347