Price Adjustment to the Exchange Rate Shock in World Commodity Markets
Hyeongwoo Kim () and
No auwp2016-01, Auburn Economics Working Paper Series from Department of Economics, Auburn University
We empirically investigate dynamic responses of 49 IMF primary commodity prices to the US dollar exchange rate shock using recursively identified vector autoregressive models. Our major empirical findings are as follows. First, price adjustments toward the new equilibrium tend to be gradual with a few exceptions. We propose and estimate two measures of price-stickiness, which provide strong evidence of short-run price rigidity in most commodities. Second, our dynamic elasticity analysis implies that price responses are quite heterogeneous even in the long-run. Some commodity prices over-adjust to the exchange rate shock, which implies higher volatility of those prices than that of the exchange rate. Third, for those commodities that over-adjust, prices in the rest of the world would rise significantly when the US dollar depreciates unexpectedly, suggesting a role for price stabilization policies.
Keywords: World Commodity Prices; Price Stickiness; Dynamic Elasticity; Vector Autoregression; Impulse-Response Function (search for similar items in EconPapers)
JEL-codes: E31 F31 Q02 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:abn:wpaper:auwp2016-01
Access Statistics for this paper
More papers in Auburn Economics Working Paper Series from Department of Economics, Auburn University Contact information at EDIRC.
Bibliographic data for series maintained by Hyeongwoo Kim ().