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

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Author Info
Virginie Coudert
Cecile Couharde
Valerie Mignon

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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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Publisher 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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Related research
Keywords: Commodities; oil; terms of trade; equilibrium real exchange rates; anchor currencies; panel cointegration;

Find related papers by JEL classification:
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
F31 - International Economics - - International Finance - - - Foreign Exchange
O13 - Economic Development, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

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