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Currency Collapses and Output Dynamics in Commodity Dependent Countries

Author

Listed:
  • Vincent Bodart

    () (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

  • Jean-François Carpantier

    () (Aix-Marseille University, CERGAM)

Abstract

This paper provides new empirical evidence on the relationship between currency collapses (i.e. large nominal depreciations or devaluations) and real output by paying a specific attention to commodity exporting countries. Using a dataset including 108 emerging and developing economies for the period 1970-2016, we document and estimate what happens to output growth during episodes of currency collapses for commodity-dependent and non commodity-dependent countries. One particular feature of our analysis is to control for war events. We find that currency crises occur more frequently in commodity-dependent countries (one crisis every 17 years versus 30 years for non commodity-dependent countries) and with a larger magnitude (median depreciation about 12 percent points larger for commodity-dependent countries). In both groups of countries, output growth declines in response to the currency collapse. It appears however that output growth starts to slowdown earlier in commodity-dependent countries while the impact is more persistent in non commodity-dependent countries. The magnitude of the output growth slowdown is very close between the two groups of countries. Finally, we find that the output growth-currency collapse relationship differs among commodity-dependent countries according to the category of their main exported commodity.

Suggested Citation

  • Vincent Bodart & Jean-François Carpantier, 2019. "Currency Collapses and Output Dynamics in Commodity Dependent Countries," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2019011, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  • Handle: RePEc:ctl:louvir:2019011
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    References listed on IDEAS

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    More about this item

    Keywords

    Currency crises; nominal depreciations; commodity currencies; exchange rates; output growth; recovery;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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