Aluminium Market and the Macroeconomy

University of Perugia, Quaderno del Dipartimento di Economia, Finanza e Statistica No. 42

40 Pages Posted: 23 Jun 2008

See all articles by Melisso Boschi

Melisso Boschi

Centre for Applied Macroeconomic Analysis (CAMA)

Luca Pieroni

University of Perugia - Department of Economics

Date Written: June 23, 2008

Abstract

We propose and test a structural model of the interaction between the aluminium market and the macro-economy incorporating the rational expectations hypothesis. Based on a competition la Cournot, our model predicts that aluminium spot price and inventories will respond to macroeconomic shocks to line up supply to the demand level. The model also includes incomplete adjustments to shocks that occur near the delivery date of futures contracts with the implication of a likely high persistence in the aluminium spot price.

Estimation results show that the aluminium price is significantly affected by the real exchange rate, while the influence of the real interest rate is small. We argue that this result is largely expected once we consider the peculiar features of the aluminium market. Further support to this view is provided by the large persistence of the aluminium price response to its own shock and by the negligible contribution of stockholdings innovations to the price forecast error variance. Finally, macroeconomic shocks explain on the whole a relevant share of the aluminium market variables forecast error variance.

Keywords: Metal commodities, Monetary transmission mechanism, Rational Expectations Hypothesis test, SVAR

JEL Classification: L11, D84, C32

Suggested Citation

Boschi, Melisso and Pieroni, Luca, Aluminium Market and the Macroeconomy (June 23, 2008). University of Perugia, Quaderno del Dipartimento di Economia, Finanza e Statistica No. 42, Available at SSRN: https://ssrn.com/abstract=1150118 or http://dx.doi.org/10.2139/ssrn.1150118

Melisso Boschi

Centre for Applied Macroeconomic Analysis (CAMA) ( email )

ANU College of Business and Economics
Canberra, Australian Capital Territory 0200
Australia

Luca Pieroni (Contact Author)

University of Perugia - Department of Economics ( email )

via Pascoli, 20
PG 06123 Perugia, 06123
Italy

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
144
Abstract Views
809
rank
241,155
PlumX Metrics