Commodity currencies revisited: The role of global commodity price uncertainty

Theodora Bermpei, Laurent Ferrara, Aikaterini Karadimitropoulou and Athanasios Triantafyllou

Journal of International Money and Finance, 2024, vol. 145, issue C

Abstract: Exchange rates of commodity exporting countries, generally known as commodity currencies, are often considered to be driven by some specific commodity prices. In this paper, we show that the uncertainty common to a basket of commodity prices is also a significant driver of exchange rate dynamics for a panel of commodity exporting countries. In particular, an increase in global commodity price uncertainty leads to a short-run depreciation of the effective exchange rate in commodity currency countries, followed by a medium-term rebound. We document that this pattern is specific to commodity currencies and is not visible on benchmark currencies like the euro or the U.S. dollar, the latter acting as a typical safe haven currency. We refer to this pattern as the “commodity uncertainty currency” property.

Keywords: Commodity currencies; Uncertainty co-movement; Commodity prices; SVAR model (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:145:y:2024:i:c:s0261560624000834

DOI: 10.1016/j.jimonfin.2024.103096

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