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Real exchanges rates in commodity producing countries : A reappraisal

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Listed author(s):
  • BODART, Vincent

    ()

    (Université catholique de Louvain, Department of Economics and IRES, B-1348 Louvain-la-Neuve, Belgium)

  • CANDELON, Bertrand

    (University of Maastricht, Department of Economics, 6200 MD Maastricht, The Netherlands)

  • CARPANTIER, Jean - François

    ()

    (Université catholique de Louvain, Department of Economics, CORE and IRES, B-1348 Louvain-la-Neuve, Belgium)

Abstract

Commodity currency literature recently stressed the importance of commodity prices as a determinant of real exchange rates in developing countries (Cashin, Cespedes and Sahay 2004). We provide new empirical evidence on this issue by focusing on countries which are specialized in the ex-port of one leading commodity. For those countries, we investigate to which extent their real exchange rate is sensitive to price fluctuations of their dominant commodity. By using non-stationary panel techniques robust to cross-sectional-dependence, we find that the price of the dominant commodity has a significant long-run impact on the real exchange rate when the exports of the leading commodity have a share of at least 20 percent in the country’s total exports of merchandises. Our results also show that the larger the share, the larger the size of the impact.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2011006.

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Date of creation: 01 Feb 2011
Handle: RePEc:cor:louvco:2011006
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Keywords: real exchange rates; commodity prices; non-stationary panel;

Other versions of this item:

Find related papers by JEL classification:
  • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
  • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
  • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
  • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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