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Real Exchanges Rates in Commodity Producing Countries: A Reappraisal

Listed author(s):
  • Vincent BODART

    ()

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) and Department of Economics)

  • Bertrand CANDELON

    ()

    (University of Maastricht, Department of Economics)

  • Jean-François CARPANTIER

    ()

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) and Center for Operations Research and Econometrics (CORE))

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 export of one leading commodity. For those countries, we investigate to which extent their real exchange rate is sensitive to price uctuations 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, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 2011007.

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Length: 30
Date of creation: 04 Feb 2011
Handle: RePEc:ctl:louvir:2011007
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