Advanced Search
MyIDEAS: Login

On the impact of oil price volatility on the real exchange rate–terms of trade nexus: Revisiting commodity currencies

Contents:

Author Info

  • Virginie Coudert
  • Cécile Couharde
  • Valérie Mignon

Abstract

The 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.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://economix.fr/pdf/dt/2014/WP_EcoX_2014-03.pdf
Download Restriction: no

Bibliographic Info

Paper provided by University of Paris West - Nanterre la Défense, EconomiX in its series EconomiX Working Papers with number 2014-3.

as in new window
Length: 21 pages
Date of creation: 2014
Date of revision:
Handle: RePEc:drm:wpaper:2014-3

Contact details of provider:
Postal: 200 Avenue de la République, Bât. G - 92001 Nanterre Cedex
Email:
Web page: http://economix.fr
More information through EDIRC

Related research

Keywords: commodity currencies; oil price; non-linearity.;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Aizenman, Joshua & Edwards, Sebastian & Riera-Crichton, Daniel, 2012. "Adjustment patterns to commodity terms of trade shocks: The role of exchange rate and international reserves policies," Journal of International Money and Finance, Elsevier, vol. 31(8), pages 1990-2016.
  2. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584.
  3. Makin, Anthony J., 2013. "Commodity prices and the macroeconomy: An extended dependent economy approach," Journal of Asian Economics, Elsevier, vol. 24(C), pages 80-88.
  4. Buetzer, Sascha & Habib, Maurizio Michael & Stracca, Livio, 2012. "Global exchange rate configurations: Do oil shocks matter?," Working Paper Series 1442, European Central Bank.
  5. Eduardo Borensztein & Carmen M. Reinhart, 1994. "The Macroeconomic Determinants of Commodity Prices," IMF Staff Papers, Palgrave Macmillan, vol. 41(2), pages 236-261, June.
  6. Kilian, Lutz, 2006. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," CEPR Discussion Papers 5994, C.E.P.R. Discussion Papers.
  7. Jose De Gregorio & Holger C. Wolf, 1994. "Terms of Trade, Productivity, and the Real Exchange Rate," NBER Working Papers 4807, National Bureau of Economic Research, Inc.
  8. Baffes, John, 2007. "Oil spills on other commodities," Policy Research Working Paper Series 4333, The World Bank.
  9. Clarida, Richard & Davis, Josh & Pedersen, Niels, 2009. "Currency carry trade regimes: Beyond the Fama regression," Journal of International Money and Finance, Elsevier, vol. 28(8), pages 1375-1389, December.
  10. Gilbert, Christopher L, 1989. "The Impact of Exchange Rates and Developing Country Debt on Commodity Prices," Economic Journal, Royal Economic Society, vol. 99(397), pages 773-84, September.
  11. BODART, Vincent & CANDELON, Bertrand & CARPANTIER, Jean - François, 2011. "Real exchanges rates in commodity producing countries : A reappraisal," CORE Discussion Papers 2011006, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  12. Nelson C. Mark & Donggyu Sul, 2002. "Cointegration Vector Estimation by Panel DOLS and Long-Run Money Demand," NBER Technical Working Papers 0287, National Bureau of Economic Research, Inc.
  13. Bruce E. Hansen, 1997. "Threshold effects in non-dynamic panels: Estimation, testing and inference," Boston College Working Papers in Economics 365, Boston College Department of Economics.
  14. Tokarick, Stephen, 2008. "Commodity currencies and the real exchange rate," Economics Letters, Elsevier, vol. 101(1), pages 60-62, October.
  15. Brown, Stephen P. A. & Yucel, Mine K., 2002. "Energy prices and aggregate economic activity: an interpretative survey," The Quarterly Review of Economics and Finance, Elsevier, vol. 42(2), pages 193-208.
  16. Phillips, Peter C B & Hansen, Bruce E, 1990. "Statistical Inference in Instrumental Variables Regression with I(1) Processes," Review of Economic Studies, Wiley Blackwell, vol. 57(1), pages 99-125, January.
  17. Andres Gonzalez & Timo Terasvirta & Dick van Dijk, 2005. "Panel Smooth Transition Regression Models," Research Paper Series 165, Quantitative Finance Research Centre, University of Technology, Sydney.
  18. Donald W. Jones, Paul N. Leiby and Inja K. Paik, 2004. "Oil Price Shocks and the Macroeconomy: What Has Been Learned Since 1996," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 1-32.
  19. Virginie Coudert & Cécile Couharde & Valérie Mignon, 2011. "Does Euro or Dollar Pegging Impact the Real Exchange Rate? The Case of Oil and Commodity Currencies," The World Economy, Wiley Blackwell, vol. 34(9), pages 1557-1592, 09.
  20. Paul Cashin & Luis Felipe Céspedes & Ratna Sahay, 2003. "Commodity Currencies and the Real Exchange Rate," Working Papers Central Bank of Chile 236, Central Bank of Chile.
  21. Chen, Shiu-Sheng & Chen, Hung-Chyn, 2007. "Oil prices and real exchange rates," Energy Economics, Elsevier, vol. 29(3), pages 390-404, May.
  22. David E. Giles, 2007. "Some Properties of Absolute Returns as a Proxy for Volatility," Econometrics Working Papers 0706, Department of Economics, University of Victoria.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:drm:wpaper:2014-3. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Valérie Mignon).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.