Will the Emergence of the Euro Affect World Commodity Prices?

John Cuddington and Hong Liang

No 295505, WIDER Working Papers from United Nations University, World Institute for Development Economic Research (UNU-WIDER)

Abstract: The emergence of the euro as a key currency, perhaps eventually rivalling the US dollar in importance, may have important macroeconomic implications for industrial as well as developing economies in the years ahead. This paper focuses on two related questions. First, what effects, if any, will the euro have on the volatility of world primary commodity prices? Second, why should the impact of the euro on real commodity prices be of interest to economic analysts and policy makers? Our econometric analysis provides evidence that episodes of internal stability of exchange rates among the 11 euro countries during 1957-98 were associated with periods of lower real commodity price volatility. These stabilizing effects are statistically significant for fertilizer, metals and petroleum, and cereals. A reasonable inference, therefore, is that the establishment of the euro on 1 January 1999 should be expected to contribute to reduced volatility of world commodity prices, other things equal, if the alternative is the higher euro-11 volatility in the 1970s. On the other hand, a move from the relatively stable euro-11 environment of the early 1990s to a single currency (with zero intra-euro-11 volatility) will have only a modest impact (reducing) commodity price volatility.

Keywords: International; Development (search for similar items in EconPapers)
Pages: 40
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Related works:
Working Paper: Will the Emergence of the Euro Affect World Commodity Prices? (2000)
Working Paper: Will the Emergence of the Euro Affect World Commodity Prices? (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:widerw:295505

DOI: 10.22004/ag.econ.295505

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