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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.

Suggested Citation

  • Sebastian Edwards, 1985. "Commodity Export Prices and the Real Exchange Rate in Developing Countries: Coffee in Colombia," NBER Working Papers 1570, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:1570
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    1. Sebastian Edwards, 1983. "The Short-Run Relation Between Inflation and Growth in Latin America," NBER Working Papers 1065, National Bureau of Economic Research, Inc.
    2. José Antonio Ocampo, 1983. "En defensa de la continuidad del régimen cambiario," Coyuntura Económica, Fedesarrollo, vol. 13(1), pages 198-214, March.
    3. Edwards, Sebastian & Aoki, Masanao, 1983. "Oil export boom and Dutch-disease : A dynamic analysis," Resources and Energy, Elsevier, vol. 5(3), pages 219-242, September.
    4. J. Peter Neary & Sweder van Wijnbergen, 1983. "Can an oil discovery lead to a recession," Working Papers 198315, School of Economics, University College Dublin.
    5. Edwards, Sebastian, 1983. "The Short-Run Relation between Growth and Inflation in Latin America: Comment," American Economic Review, American Economic Association, vol. 73(3), pages 477-482, June.
    6. Miguel Urrutia, 1981. "Experience with the Crawling Peg in Colombia," Palgrave Macmillan Books, in: John Williamson (ed.), Exchange Rate Rules, pages 207-229, Palgrave Macmillan.
    7. Harberger, Arnold C., 1983. "Dutch disease -- how much sickness, how much boon?," Resources and Energy, Elsevier, vol. 5(1), pages 1-20, March.
    8. Maurice Obstfeld, 1984. "Capital Flows, the Current Account, and the Real Exchange Rate: Consequences of Liberalization and Stabilization," NBER Working Papers 1526, National Bureau of Economic Research, Inc.
    9. Neary, J Peter & van Wijnbergen, S, 1984. "Can an Oil Discovery Lead to a Recession? A Comment," Economic Journal, Royal Economic Society, vol. 94(374), pages 390-395, June.
    10. International Monetary Fund, 1984. "Issues in the Assessment of the Exchange Rates of Industrial Countries," IMF Occasional Papers 1984/004, International Monetary Fund.
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