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Do Terms of Trade Drive Real Exchange Rates? Comparing Oil and Commodity Currencies

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  • Virginie Coudert
  • Cécile Couharde
  • Valérie Mignon

Abstract

This paper investigates whether terms of trade have an impact on real exchange rates for commodity exporters and oil exporters. To this end, we estimate a long term relationship between the real effective exchange rate and economic fundamentals, including the commodity terms of trade. The estimation relies on panel cointegration techniques and covers annual data from 1980 to 2007. Our results show that real exchange rates co-move with commodity prices in the long run and respond to oil price somewhat less than to commodity prices. We also find that some pegged currencies have been driven away from their equilibria by wild fluctuations in the key currencies, on which they are anchored.

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Bibliographic Info

Paper provided by CEPII research center in its series Working Papers with number 2008-32.

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Date of creation: Dec 2008
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Handle: RePEc:cii:cepidt:2008-32

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Keywords: Commodities; Oil; Terms of trade; Equilibrium real exchange rates; Anchor currencies; Panel cointegration;

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References

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Citations

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Cited by:
  1. Carl Grekou, 2014. "Revisiting the nexus between currency misalignments and growth in the CFA Zone," EconomiX Working Papers 2014-4, University of Paris West - Nanterre la Défense, EconomiX.
  2. Vincent BODART & Bertrand CANDELON & Jean-François CARPANTIER, 2011. "Real Exchange Rates, Commodity Prices and Structural Factors in Developing Countries," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales), Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) 2011045, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  3. Blaise Gnimassoun, 2012. "Taux de change et mésalignements du franc CFA avant et après l’introduction de l’euro," EconomiX Working Papers 2012-3, University of Paris West - Nanterre la Défense, EconomiX.
  4. Al-Abri, Almukhtar Saif, 2014. "Optimal exchange rate policy for a small oil-exporting country: A dynamic general equilibrium perspective," Economic Modelling, Elsevier, Elsevier, vol. 36(C), pages 88-98.
  5. Virginie Coudert, 2009. "Mythes et réalités de la « zone dollar »," Revue d'Économie Financière, Programme National Persée, Programme National Persée, vol. 94(1), pages 151-169.
  6. Jay, Squalli, 2011. "Is the dollar peg suitable for the largest economies of the Gulf Cooperation Council?," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 21(4), pages 496-512, October.
  7. Virginie Coudert & Cécile Couharde & Valérie Mignon, 2010. "Exchange Rate Flexibility Across Financial Crises," Working Papers, CEPII research center 2010-08, CEPII research center.
  8. Virginie Coudert & Cécile Couharde & Valérie Mignon, 2013. "On the Impact of Oil Price Volatility on the Real Exchange Rate - Terms of Trade Nexus : Revisiting Commodity Currencies," Working Papers, CEPII research center 2013-40, CEPII research center.
  9. Cécile Couharde & Issiaka Coulibaly & Olivier Damette, 2011. "Misalignments and Dynamics of Real Exchange Rates in the CFA Franc Zone," EconomiX Working Papers 2011-28, University of Paris West - Nanterre la Défense, EconomiX.
  10. Cécile Couharde & Issiaka Coulibaly & David Guerreiro & Valérie Mignon, 2012. "Revisiting the theory of optimum currency areas: Is the CFA franc zone sustainable?," Working Papers, CEPII research center 2012-13, CEPII research center.
  11. Gilles Duffrenot & Kimiko Sugimoto, 2010. "Pegging the future West African single currency in regard to internal/external competitiveness: a counterfactual analysis," William Davidson Institute Working Papers Series, William Davidson Institute at the University of Michigan wp974, William Davidson Institute at the University of Michigan.
  12. Virginie Coudert & Cécile Couharde & Valérie Mignon, 2012. "Pegging emerging currencies in the face of dollar swings," Working Papers, CEPII research center 2012-21, CEPII research center.
  13. International Monetary Fund, 2011. "Oil-Price Boom and Real Exchange Rate Appreciation," IMF Working Papers, International Monetary Fund 11/268, International Monetary Fund.
  14. Hassan Suleiman & Zahid Muhammad, 2011. "The real exchange rate of an oil exporting economy: Empirical evidence from Nigeria," FIW Working Paper series, FIW 072, FIW.
  15. Antonia López-Villavicencio & Valérie Mignon, 2009. "On Equilibrium Exchange Rates: Is Emerging Asia Different?," Working Papers, CEPII research center 2009-38, CEPII research center.
  16. Buetzer, Sascha & Habib, Maurizio Michael & Stracca, Livio, 2012. "Global exchange rate configurations: Do oil shocks matter?," Working Paper Series, European Central Bank 1442, European Central Bank.

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