OIL VOLATILITY PASS THROUGH AND REAL EXCHANGE MISALIGNMENT IN LEADING COMMODITY EXPORTING COUNTRIES

Nicola Rubino
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Nicola Rubino: University of Barcelona, Faculty of Economics and Business

Ekonomski pregled, 2020, vol. 71, issue 6, 579-606

Abstract: Past research has shown how real Exchange rates follow a univariate nonlinear process that approximates their behavior in terms of transaction costs. However, little or nothing has been said about alternative sources of nonlinearity in commodity exporting countries. Our paper investigates the missing link between the Real Exchange Rate Commodity Prices equilibrium by employing an oil price volatility measure as an external source of short-term fluctuations. Our estimates show that the Real Exchange Rate Commodity price relationship appears to be nonlinear with respect to oil price variation, and that the goodness of fit of the nonlinear specifications appears to outperform that of the equivalent linear models. The equilibrium speed of adjustment appears to be different in the two branches of the relationship: in the majority of the threshold models, the negative volatility regime presents a faster speed of adjustment and in some cases a most significant one.

Keywords: Transition regression model; real exchange rate; nonlinearities; oil prices; commodity prices (search for similar items in EconPapers)
JEL-codes: C22 C32 F31 (search for similar items in EconPapers)
Date: 2020
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