Commodity Currencies: A Macroeconomic Interpretation
AbstractThe paper investigates if there is a theoretical basis for the "commodity currency" phenomenon in small open economies exporting Okun's "auction goods" under short-term capacity constraints. It is shown under a variety of assumed conditions that commodity prices map into currency movements which are inline with those expected by the "commodity currency" hypothesis and that this holds irrespective of whether trade is initially balanced or not. The case of a "perfect" commodity currency may be said to arise where the domestic cost and price effects of fluctuating commodity prices are fully neutralised by the accompanying movements in nominal exchange rates. It is further shown that while the present regime of floating exchanges and high international capital mobility limits the scope in primary exporting countries for stimulating output and employment when commodity prices are high, the system is less prone to inflationary excesses than the previous regime of fixed or regulated exchange rates.
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Bibliographic InfoArticle provided by Queensland University of Technology (QUT), School of Economics and Finance in its journal Economic Analysis and Policy (EAP).
Volume (Year): 34 (2004)
Issue (Month): 1 (March)
Currencies; Currency; Open Economies; Trade;
Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- O19 - Economic Development, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Paul Krugman, 1993. "Recent Thinking About Exchange Rate Determination and Policy," RBA Annual Conference Volume, in: Adrian Blundell-Wignall (ed.), The Exchange Rate, International Trade and the Balance of Payments Reserve Bank of Australia.
- T. W.Swan, 1960. "Economic Control In A Dependent Economy," The Economic Record, The Economic Society of Australia, vol. 36(73), pages 51-66, 03.
- Kenneth W. Clements & Renee Fry, 2006.
"Commodity Currencies And Currency Commodities,"
CAMA Working Papers
2006-19, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
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