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Real exchanges rates in commodity producing countries : A reappraisal

  • 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)

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
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Handle: RePEc:cor:louvco:2011006
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