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The impact of U.S. dollar movements and U.S. dollar states on non-perishable commodity prices

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  • Grossmann, Axel
  • Kim, Jintae

Abstract

This paper investigates the impact of U.S. dollar movements and the state of the U.S. dollar (overvaluation and undervaluation) on 15 non-perishable commodity prices. Using a structural vector autoregressive (VAR) model, we find an asymmetric effect. Movements of an overvalued U.S. dollar do not show an effect on commodity prices, while movements of an undervalued U.S. dollar indicate a statistically significant negative impact on commodity prices in the short-run as well as in the long-run. The finding might be brought about by agents’ expectations that an undervalued strengthening U.S. dollar continues to appreciate as it seeks its way back to equilibrium. Commodity exporters may increase their supply in expectation that they will continue to receive more domestic currencies when selling at U.S. dollar prices. On the demand side, however, the effect of a strengthening U.S. dollar may be offset by the fact that the U.S. dollar is currently undervalued.

Suggested Citation

  • Grossmann, Axel & Kim, Jintae, 2022. "The impact of U.S. dollar movements and U.S. dollar states on non-perishable commodity prices," Research in International Business and Finance, Elsevier, vol. 61(C).
    • Handle: RePEc:eee:riibaf:v:61:y:2022:i:c:s0275531922000617
    DOI: 10.1016/j.ribaf.2022.101673
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    More about this item

    Keywords

    U.S. dollar; Commodities prices; Trade; Structural VAR;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • F10 - International Economics - - Trade - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices

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