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Commodity Export Prices and the Real Exchange Rate in Developing Countries: Coffee in Colombia

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  • Sebastian Edwards

Abstract

In this paper a model that analyzes the interaction between changes in commodity export prices, money creation, inflation, and the real exchange rate in a developing country is developed. The model is then tested using data for Colombia. A number of experts have argued that the fluctuations of Colombia's real exchange rate have been mainly determined by world coffee price changes, with more observers emphasizing the consequences of coffee price changes on money creation and inflation. The results obtained indicate that coffee price changes have indeed been closely related to money creation and inflation. Also, coffee price changes have been negatively related to the rate of devaluation of the crawling peg. These results indicate that in Colombia, the real appreciation resulting from coffee price increases has been accommodated, partially by money creation and partially by an adjustment in the nominal exchange rate.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1570.

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Date of creation: Feb 1985
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Publication status: published as Edwards, Sebastian. "Commodity Export Prices and the Real Exchange Rate in Developing Countries: Coffee in Columbia," Economic Adjustment and Real Exchange Rates in Developing Countries, edited by S. Edwards and Liquat Ahamed. Chicago: UCP, 1986.
Handle: RePEc:nbr:nberwo:1570

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Cited by:
  1. Jesús Otero & Costas Milas, 2001. "Modelling Official And Parallel Exchange Rates In Colombia Under Alternative Regimes: A Non-Linear Approach," CeNDEF Workshop Papers, January 2001, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance PO2, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  2. Otero, Jesus G., 2000. "Coffee, economic fluctuations and stabilisation: an intertemporal disequilibrium model with capital market imperfections," Journal of Development Economics, Elsevier, Elsevier, vol. 62(1), pages 105-129, June.
  3. Paul Cashin & Luis Felipe Céspedes & Ratna Sahay, 2003. "Commodity Currencies and the Real Exchange Rate," Working Papers Central Bank of Chile, Central Bank of Chile 236, Central Bank of Chile.
  4. Kristin J. Forbes, 2002. "Cheap Labor Meets Costly Capital: The Impact of Devaluations on Commodity Firms," NBER Working Papers 9053, National Bureau of Economic Research, Inc.
  5. International Monetary Fund, 2003. "The Equilibrium Real Exchange Rate in a Commodity Exporting Country," IMF Working Papers 03/93, International Monetary Fund.
  6. Jesus Otero & Costas Milas, 2000. "Modelling official and parallel exchange rates in Colombia under alternative regimes: a non-linear approach (Corrected version)," BORRADORES DE INVESTIGACIÓN, UNIVERSIDAD DEL ROSARIO 003232, UNIVERSIDAD DEL ROSARIO.

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