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Commodity Currencies and Empirical Exchange Rate Puzzles

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  • Kenneth Rogoff
  • Yu-chin Chen

Abstract

This paper re-examines empirical exchange rate puzzles by focusing on three OECD economies (Australia, Canada, and New Zealand) where primary commodities constitute a significant share of their exports. For Australia and New Zealand especially, we find that the U.S. dollar price of their commodity exports (generally exogenous to these small economies) —has a strong and stable influence on their floating real rates, with the quantitative magnitude of the effects consistent with predictions of standard theoretical models. However, after controlling for commodity price shocks, there is still a PPP puzzle in the residual. Nevertheless, the results here are relevant to many developing country commodity exporters, as they liberalize their capital markets and move towards floating exchange rates.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 02/27.

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Length: 46
Date of creation: 01 Feb 2002
Date of revision:
Handle: RePEc:imf:imfwpa:02/27

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Keywords: Capital flows; exchange rate; real exchange rate; commodity prices; exchange rates; real exchange rates; terms of trade; world price; world market; terms of trade shocks; exchange rate behavior; trade shocks; exchange rate shocks; log real exchange rate; exchange rate movements; nominal exchange rates; world prices; world market price; export prices; foreign exchange; export price; exchange rate policies; floating exchange rate; trading partners; open economies; export earnings; flexible exchange rates; home currency; floating exchange rates; exchange rate regimes; international trade; exchange rate regime; commodity exporters; world price index; price fluctuations; oil prices; open economy; trade-weighted average; exchange rate pegs; net exporter; exchange rate variations; exchange rate dynamics; trading partner; world markets; nontradable goods; nominal exchange rate; exchange rate volatility; world growth; global exports; real exchange rate movements; dollar exchange rate; transport services; wholesale trade; exchange rate determination; currency markets; import price; exchange rate systems; real exchange rate behavior; exchange markets; domestic production; flexible exchange rate; currency basket; exchange rate levels; floating exchange rate regimes; income differentials; flexible exchange rate regime; world exports; global market;

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References

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