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Will the Emergence of the Euro Affect World Commodity Prices?

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Author Info

  • Hong Liang
  • John T. Cuddington

Abstract

This study provides evidence that episodes of internal stability of exchange rates among the 11 Euro countries during 1957-98 were associated with periods of lower real commodity price volatility. These stabilizing effects are statistically significant for fertilizer, metals, petroleum, and cereals. A reasonable inference, therefore, is that the establishment of the Euro on January 1, 1999, should be expected to contribute to reduced volatility of world commodity prices, other things equal, although the impacts are likely to be modest.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 00/208.

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Length: 32
Date of creation: 01 Dec 2000
Date of revision:
Handle: RePEc:imf:imfwpa:00/208

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Keywords: Commodity prices; Euro; Exchange rate regimes; exchange rate; exchange rates; exchange rate volatility; nominal exchange rate; exchange rate fluctuations; export earnings; dollar exchange rate; flexible exchange rate; effective exchange rate; nominal exchange rates; terms of trade; real exchange rate; euro exchange rate; fixed exchange rate; exchange rate fluctuation; commodity trade; international trade; real exchange rates; exchange rate regime; flexible exchange rate regimes; exchange rate stability; exchange rate changes; world economy; intermediate goods; basket of currencies; exchange rate arrangements; exchange rate uncertainty; exchange rate mechanism; market exchange rates; exchange rates fluctuations; euro exchange rates; agricultural trade; net exporter; political economy; trade data; export supply; aggregate demand; exporting countries; world prices; exchange rate overshooting; bilateral exchange rates; exchange rate commitment; exchange arrangements; intermediate inputs; import prices; exchange rate volatilities; exchange systems; global market; closed economy; average exchange rate; floating exchange rates; global production; world exports; monetary integration; monetary union;

References

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  1. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
  2. Hong Liang & C. John McDermott & Paul Cashin, 1999. "How Persistent Are Shocks to World Commodity Prices?," IMF Working Papers 99/80, International Monetary Fund.
  3. Perron, Pierre, 1990. "Testing for a Unit Root in a Time Series with a Changing Mean," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(2), pages 153-62, April.
  4. Flood, Robert P & Rose, Andrew K, 1993. "Fixing Exchange Rates: A Virtual Quest for Fundamentals," CEPR Discussion Papers 838, C.E.P.R. Discussion Papers.
  5. Carmen M. Reinhart & Peter Wickham, 1994. "Commodity Prices: Cyclical Weakness or Secular Decline?," IMF Staff Papers, Palgrave Macmillan, vol. 41(2), pages 175-213, June.
  6. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-48, April.
  7. Cuddington, John T., 1992. "Long-run trends in 26 primary commodity prices : A disaggregated look at the Prebisch-Singer hypothesis," Journal of Development Economics, Elsevier, vol. 39(2), pages 207-227, October.
  8. Cuddington, John T & Urzua, Carlos M, 1989. "Trends and Cycles in the Net Barter Terms of Trade: A New Approach," Economic Journal, Royal Economic Society, vol. 99(396), pages 426-42, June.
  9. Peter Wickham & Carmen Reinhart, 1994. "Commodity Prices," IMF Working Papers 94/7, International Monetary Fund.
  10. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
  11. Reinhart, Carmen, 1991. "Fiscal Policy, the Real Exchange Rate, and Commodity Prices," MPRA Paper 8197, University Library of Munich, Germany.
  12. Bui, Nhuong & Pippenger, John, 1990. "Commodity prices, exchange rates and their relative volatility," Journal of International Money and Finance, Elsevier, vol. 9(1), pages 3-20, March.
  13. Reinhart, Carmen & Borensztein, Eduardo, 1994. "The Macroeconomic Determinants of Commodity Prices," MPRA Paper 6979, University Library of Munich, Germany.
  14. Reinhart, Carmen & Wickham, Peter, 1994. "Non-oil commodity prices: Cyclical weakness or secular decline?," MPRA Paper 13871, University Library of Munich, Germany.
  15. Beckerman, Wilfred & Jenkinson, Tim, 1986. "What Stopped the Inflation? Unemployment of Commodity Prices?," Economic Journal, Royal Economic Society, vol. 96(381), pages 39-54, March.
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Citations

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Cited by:
  1. Hong Liang & Paul Cashin & Hali J. Edison, 2003. "Foreign Exchange Intervention and the Australian Dollar," IMF Working Papers 03/99, International Monetary Fund.
  2. René Lalonde & Zhenhua Zhu & Frédérick Demers, 2003. "Forecasting and Analyzing World Commodity Prices," Working Papers 03-24, Bank of Canada.

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