Effective Cross-Hedging for Commodity Currencies

Tanya Bowman

International and Development Economics Working Papers from International and Development Economics

Abstract: There has been little evidence in the past to support the use of commodity-currency cross-hedges (Demaskey and Pearce, 1998; Benet, 1990; Eaker and Grant, 1987). However, this paper shows that if currencies can be defined as commodity currencies, as per Chen and Rogoff (2003) and Cashin, Ce´spedes and Sahay (2004), commodity-currency cross-hedges are effective and beneficial. Two commodity currencies, the Papua New Guinea kina and the Australian dollar, are shown here to be effectively hedged by commodity futures. Multiple commodity hedges generally improved performance, with four-commodity basket hedges effective for both currencies.

JEL-codes: F31 G15 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2005
New Economics Papers: this item is included in nep-fin
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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