Currency Collapses and Output Dynamics in Commodity Dependent Countries

Vincent Bodart and Jean-François Carpantier

No 2019011, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: This paper provides new empirical evidence on the relationship between currency collapses (i.e. large nominal depreciations or devaluations) and real output by paying a specific attention to commodity exporting countries. Using a dataset including 108 emerging and developing economies for the period 1970-2016, we document and estimate what happens to output growth during episodes of currency collapses for commodity-dependent and non commodity-dependent countries. One particular feature of our analysis is to control for war events. We find that currency crises occur more frequently in commodity-dependent countries (one crisis every 17 years versus 30 years for non commodity-dependent countries) and with a larger magnitude (median depreciation about 12 percent points larger for commodity-dependent countries). In both groups of countries, output growth declines in response to the currency collapse. It appears however that output growth starts to slowdown earlier in commodity-dependent countries while the impact is more persistent in non commodity-dependent countries. The magnitude of the output growth slowdown is very close between the two groups of countries. Finally, we find that the output growth-currency collapse relationship differs among commodity-dependent countries according to the category of their main exported commodity.

Keywords: Currency crises; nominal depreciations; commodity currencies; exchange rates; output growth; recovery (search for similar items in EconPapers)
JEL-codes: E32 F31 F32 F41 F43 Q02 (search for similar items in EconPapers)
Date: 2019-06
New Economics Papers: this item is included in nep-his, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Currency collapses and output dynamics in commodity dependent countries (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvir:2019011

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