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Commodity currencies revisited: The role of global commodity price uncertainty

Laurent Ferrara, Aikaterini Karadimitropoulou, Athanasios Triantafyllou and Theodora Bermpei

No 2022-24, EconomiX Working Papers from University of Paris Nanterre, EconomiX

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, a positive shock on global commodity price uncertainty leads to a short-run depreciation of the effective exchange rate in commodity currency countries, followed by a medium-term overshooting. 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)
JEL-codes: C50 F31 F43 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2022
New Economics Papers: this item is included in nep-ifn, nep-mon, nep-opm and nep-pay
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Persistent link: https://EconPapers.repec.org/RePEc:drm:wpaper:2022-24

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