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Commodity Currencies: A Macroeconomic Interpretation

Author

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  • Polasek, Matt

    (Flinders University, South Australia)

Abstract

The paper investigates if there is a theoretical basis for the "commodity currency" phenomenon in small open economies exporting Okun's "auction goods" under short-term capacity constraints. It is shown under a variety of assumed conditions that commodity prices map into currency movements which are inline with those expected by the "commodity currency" hypothesis and that this holds irrespective of whether trade is initially balanced or not. The case of a "perfect" commodity currency may be said to arise where the domestic cost and price effects of fluctuating commodity prices are fully neutralised by the accompanying movements in nominal exchange rates. It is further shown that while the present regime of floating exchanges and high international capital mobility limits the scope in primary exporting countries for stimulating output and employment when commodity prices are high, the system is less prone to inflationary excesses than the previous regime of fixed or regulated exchange rates.

Suggested Citation

  • Polasek, Matt, 2004. "Commodity Currencies: A Macroeconomic Interpretation," Economic Analysis and Policy, Elsevier, vol. 34(1), pages 63-78, March.
    • Handle: RePEc:eee:ecanpo:v:34:y:2004:i:1:p:63-78
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    Citations

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    Cited by:

    1. Clements, Kenneth W. & Fry, Renée, 2008. "Commodity currencies and currency commodities," Resources Policy, Elsevier, vol. 33(2), pages 55-73, June.
    2. Sanidas, Elias, 2014. "Four harmonic cycles explain and predict commodity currencies' wide long term fluctuations," Technological Forecasting and Social Change, Elsevier, vol. 87(C), pages 135-151.

    More about this item

    Keywords

    Currencies; Currency; Open Economies; Trade;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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