An empirical evidence of impact of interest rates, inflation and GDP on spot commodity index (COMDEX)

Abstract

The study has been done in order to analyze the degree of relationship between commodity spot index prices and the major macro-economic factors i.e. interest rates, inflation and GDP (Gross domestic product) and to know the overall impact of all this variables i.e. interest rates, inflation and GDP on Commodity Spot Index (Comdex) in India is done. The commodity Index spot prices are driven by many macroeconomic factors, in this study the degree of macro-economic factors i.e. inflation, interest rates, GDP, and its effect on commodity Index spot prices is analyzed. Secondly, the volatility impact of these factors on Comdex is also examined. In order to find out significance relationship and impact of selected macro economic variables .i.e. GDP, Interest Rate, Inflation on COMDEX, Regression Analysis have been used and regression model is developed to know the impact of each variable on COMDEX. The study also focuses on developing Model to forecast GDP, Interest Rate by using ARIMA technique where in unit root test was run by using (Augmented Dickey-Fuller Test) also by considering the first difference in order to make the data normal and ARIMA model were develop through correlogram at 10 days lag. Forecasting is done for commodity spot index and interest rates because both this variable was highly related and influential. Best forecasting model is selected based on high R Square and low AIC value. And the study shows the results that there is a high negative correlation between commodity index and GDP and Comdex spot and interest rate shows a positive relationship. The volatility impact of these factors is high as the value tend to increase or decrease with slight volatility movement.