On the impact of oil price volatility on the real exchange rate–terms of trade nexus: Revisiting commodity currencies
AbstractThe aim of this paper is to study the relationship between terms of trade and real exchange rates of commodity-producing countries on both the short and the long run. We pay particular attention to the dominant role played by oil among commodities by investigating the potential non-linear effect exerted by the situation on the oil market on the real exchange rate - terms of trade nexus. To this end, we rely on the panel smooth transition regression methodology to estimate the adjustment process of the real effective exchange rate to its equilibrium value depending on the volatility on the oil market. Considering a panel of 52 commodity exporters and 17 oil exporters over the 1980-2012 period, our findings show that while exchange rates are mainly driven by fundamentals in the low-volatility regime, they are mostly sensitive to changes in terms of trade when oil price variations exceed a certain threshold. The commodity-currency property is thus at play in the short run only for important variations in the oil price.
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Bibliographic InfoPaper provided by University of Paris West - Nanterre la Défense, EconomiX in its series EconomiX Working Papers with number 2014-3.
Length: 21 pages
Date of creation: 2014
Date of revision:
commodity currencies; oil price; non-linearity.;
Other versions of this item:
- 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 2013-40, CEPII research center.
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- F31 - International Economics - - International Finance - - - Foreign Exchange
- Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-02-08 (All new papers)
- NEP-ENE-2014-02-08 (Energy Economics)
- NEP-INT-2014-02-08 (International Trade)
- NEP-OPM-2014-02-08 (Open Economy Macroeconomics)
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