Three essays on commodity prices

In the first part of our thesis, we present an analysis of a group of small commodity exporting countries' price differentials relative to the US dollar. Using unrestricted self exciting threshold autoregressive models (SETAR). We model and evaluate sixteen national consumers' price index (CPI) differentials relative to the US dollar CPI. Out-of-sample forecast accuracy is evaluated through calculation of mean absolute errors measures on the basis of monthly rolling window and recursive forecasts and extended to three additional models, namely a logistic smooth transition regression (LSTAR), an additive non-linear autoregressive model (AAR) and a simple neural network model (NNET). Our preliminary results confirm presence of some form of non-linearity in the majority of the countries analyzed, generally favoring the Heckscher commodity points theory. Secondly, we estimate a behavioral real exchange rate model, contributing to the literature on the exchange rates through the adoption of a newly built commodity price index. Our results show that past literature do appear to have overestimated the impact of the commodities' terms of trade on the real exchange rate. Panel Granger causality testing leads us to conclude that that the long run relationship between prices and the exchange rate in commodity exporting countries is substantially still present, although no country group would clearly present contemporaneously a significant (and meaningful) short and long run causation scheme. Finally, we study the impact of commodity price volatility on the real exchange rate short term convergence in an error correction background in a panel of developed and developing countries. Through a logistic smooth transition regression, different measures of volatility are taken into account to capture arbitrage opportunities and the alternating regimes of convergence of the exchange rate to its equilibrium, proving that the commodity points theory of Heckscher represents a valid way of looking at non-linear convergence of the exchange rate to its equilibrium path