Commodity Currencies and Empirical Exchange Rate Puzzles

Kenneth Rogoff and Yu-chin Chen

No 2002/027, IMF Working Papers from International Monetary Fund

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: WP; exchange rate; commodity; commodity price; commodity price stocks; capital flows; elasticity estimate; commodity export; price data; Canadian dollar; real commodity price; responses to world commodity price shock; world commodity price series; commodity currency; commodity price movement; productivity-augmented equation; commodity economy; Real exchange rates; Commodity prices; Exchange rates; Currencies; Terms of trade; Australia and New Zealand; Global (search for similar items in EconPapers)
Pages: 46
Date: 2002-02-01
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Citations: View citations in EconPapers (47)

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