Commodity Currencies and Empirical Exchange Rate Puzzles

Y.Chen and Kenneth S Rogoff

DNB Staff Reports (discontinued) from Netherlands Central Bank

Abstract: This paper re-examines empirical exchange rate puzzles by focusing on three OECD economies (Australia, Canada, and New Zealand) where primary commodities constitute a significant share of their exports. For Australia and New Zealand especially, we find that the U.S. dollar price of their commodity exports (generally exogenous to these small economies) - has a strong and stable influence on their floating real rates, with the quantitative magnitude of the effects consistent with predictions of standard theoretical models. However, after controlling for commodity price shocks, there is still a PPP puzzle in the residual. Nevertheless, the results here are relevant to many developing country commodity exporters, as they liberalize their capital markets and move towards floating exchange rates.

Keywords: Exchange Rates; Commodity Prices; Purchasing Power Parity (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin, nep-ifn and nep-rmg
Date: 2003
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Persistent link: http://EconPapers.repec.org/RePEc:dnb:staffs:76

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