Commodity currencies and the real exchange rate

Abstract

This paper examines whether the real exchange rates of commodity-exporting countries and the real prices of their commodity exports move together over time. Using International Monetary Fund (IMF) data on the world prices of 44 commodities and national commodity export shares, we construct new monthly indices of national commodity export prices for 58 commodity-exporting countries over 1980 -2002. Evidence of a long-run relationship between national real exchange rate and real commodity prices is found for about one-third of the commodity-exporting countries. The long-run real exchange rate of these 'commodity currencies' is not constant (as would be implied by purchasing power parity-based models) but is time varying, being dependent on movements in the real price of commodity exports. D

Energy prices and the real exchange rate of commodity-exporting countries

“…For Australia and New Zealand, they find evidence of a strong and stable correlation between the US dollar price of commodities and the REER, the long-run elasticity ranging from 0.73 to 1.01 for Australia and New-Zealand respectively. It is in line with Gruen and Wilkinson (1994) and Gruen and Kortian (1996) whose analyses point out the power of predictability of the terms-of-trade on the Australian currency over the period 1969-1994. Cashin et al (2004 expand the analysis to a set of 58 developped and developing countries over the period 1980-2002.…”

“…1 The literature evidenced a positive link between the two variables, leading to the denomination "commodity currencies" (Chen and Rogoff, 2003;Cashin et al, 2004), that applies to both developped (Amano and van Norden, 1995;Chen and Rogoff, 2003) and developing countries (Cashin et al, 2004;Coudert et al, 2011;Bodart et al, 2012). More recently, "oil currencies" were observed (Habib and Kalamova, 2007;Korhonen and Jurrikkala, 2009;Coudert et al, 2011), defined as currencies that appreciate when the price of oil goes up.…”

“…We focus on ten energy producers that export either crude oil, natural gas, or coal. To our best knowledge, the existing literature has made a clear distinction between oil and other commodities (Cashin et al, 2004;Coudert et al, 2011), yet coal, natural gas and oil show the same feature that is being a non-renewable fossil resource, thus subject to the same depletion issue. They represent 27%, 21% and 33% of the demand for primary energy worldwide, respectively.…”

The impact of oil shocks on exchange rates: A Markov-switching approach

“…The terms of trade channel impacts both oil-exporting and oil-importing countries, albeit in different ways (e.g., Cordon and Neary, 1982;Amano and van Norden, 1998a,b;Backus and Crucini, 2000;Chen and Rogoff, 2003;and Cashin et al, 2004). For oil-importing countries, an increase in oil prices generally leads to a deterioration of the trade balance and subsequently to a depreciation of the local currency (Fratzscher et al, 2014).…”

Energy Prices and the Real Exchange Rate of Commodity-Exporting Countries

“…Conversely, Chen and Rogoff (2003) offer a somewhat different model from Cashin et al (2004) since they assume that the open sector requires capital input, in addition to labor. It allows the pass-through of an exogenous shock on the terms-of-trade to differ from unity, which is more likely to be verified in empirical studies.…”