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On the Impact of Oil Price Volatility on the Real Exchange Rate - Terms of Trade Nexus : Revisiting Commodity Currencies

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Listed author(s):
  • Virginie Coudert
  • Cécile Couharde
  • Valérie Mignon

Abstract

The aim of this paper is to study the relationship between terms of trade and real exchange rates of commodityproducing Commodity currencies,countries on both the short and the long run. We pay particular attention to the dominant role played by oil among commodities by investigating the potential non-linear effect exerted by the situation on the oil market on the real exchange rate - terms of trade nexus. To this end, we rely on the panel smooth transition regression methodology to estimate the adjustment process of the real effective exchange rate to its equilibrium value depending on the volatility on the oil market. Considering a panel of 52 commodity exporters and 17 oil exporters over the 1980-2012 period, our findings show that while exchange rates are mainly driven by fundamentals in the low-volatility regime, they are mostly sensitive to changes in terms of trade when oil price variations exceed a certain threshold. The commodity-currency property is thus at play in the short run only for important variations in the oil price.

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Paper provided by CEPII research center in its series Working Papers with number 2013-40.

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Date of creation: Dec 2013
Handle: RePEc:cii:cepidt:2013-40
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Keywords: Commodity currencies; Oil price; Non-linearity;

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Find related papers by JEL classification:
  • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
  • F31 - International Economics - - International Finance - - - Foreign Exchange
  • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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Cited by:

  1. Mahmut Zortuk & Sinan Çeken, 2016. "Testing Environmental Kuznets Curve in the Selected Transition Economies with Panel Smooth Transition Regression Analysis," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 18(43), pages 537-537, August.
  2. Mahmut ZORTUK & Sinan ÇEKEN, 2015. "The Relationship between Health Care Expenditures and Income in the Selected Transition Economies: A Panel Smooth Transition Regression Analysis," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 105-118, June.

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