What Makes a Commodity Currency?

Dongwon Lee and Yu-chin Chen ()
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Yu-chin Chen: Department of Economics, University of Washington

No 201420, Working Papers from University of California at Riverside, Department of Economics

Abstract: The "commodity currency" literature highlights the robust exchange rate response to fluctuations in world commodity prices that occurs for major commodity exporters. The magnitude of this response, however, varies widely among countries. Our panel data analysis using 63 countries for 1980-2010 finds that, in accordance with theory, the long-run cointegrating relationship between the real exchange rate and commodity export prices depends on the nation’s export market structure, monetary policy choices and degree of trade and financial openness. We also show that the commodity price-exchange rate connection is much weaker in the short-run and for a group of oil-exporting countries. Given concerns for the Dutch disease or resource curse, our findings are of particular relevance for monetary policy-making and for globalization strategy in commodity-exporting developing economies.

Keywords: Real exchange rate; Commodity prices; Panel cointegration; Commodity exports; Exchange rate regime; International reserves (search for similar items in EconPapers)
JEL-codes: C32 C33 F31 F41 O13 (search for similar items in EconPapers)
Pages: 42 Pages
Date: 2014-09
New Economics Papers: this item is included in nep-mon and nep-opm
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Citations: View citations in EconPapers (8)

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