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Got milk? The effect of export price shocks on exchange rates

Author

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  • Stein, Hillary

Abstract

I examine the effect of exogenous terms of trade shocks on an exchange rate by turning to New Zealand’s dairy auctions. Dairy is New Zealand’s largest export category, making up almost 20 percent of exports. Specifically, whole milk powder accounts for 6 to 11 percent of total exports, and its price is determined in twice-monthly auctions. I use event studies to quantify the impact of surprise auction results on the New Zealand dollar on a high-frequency basis. I find that a 1 percent surprise increase in whole milk powder prices has a modest, but nevertheless significant, effect on the nominal exchange rate. The methodology developed here can potentially be applied to other commodity exporters.

Suggested Citation

  • Stein, Hillary, 2025. "Got milk? The effect of export price shocks on exchange rates," Journal of International Economics, Elsevier, vol. 155(C).
    • Handle: RePEc:eee:inecon:v:155:y:2025:i:c:s0022199625000364
    DOI: 10.1016/j.jinteco.2025.104080
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    More about this item

    Keywords

    Exchange rates; Event studies; Terms of trade; Commodity prices;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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