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Commodity currencies revisited: The role of global commodity price uncertainty

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Listed:
  • Laurent Ferrara
  • Aikaterina Karadimitropoulou
  • Athanasios Triantafyllou
  • Theodora Bermpei

Abstract

Exchange rates of commodity exporting countries, generally known as commodity currencies, are often considered to be driven by some specific commodity prices. In this paper, we show that the uncertainty common to a basket of commodity prices is also a significant driver of exchange rate dynamics for a panel of commodity exporting countries. In particular, a positive shock on global commodity price uncertainty leads to a short-run depreciation of the effective exchange rate in commodity currency countries, followed by a medium-term overshooting. We document that this pattern is specific to commodity currencies and is not visible on benchmark currencies like the euro or the U.S. dollar, the latter acting as a typical safe haven currency. We refer to this pattern as the “commodity uncertainty currency” property.

Suggested Citation

  • Laurent Ferrara & Aikaterina Karadimitropoulou & Athanasios Triantafyllou & Theodora Bermpei, 2022. "Commodity currencies revisited: The role of global commodity price uncertainty," EconomiX Working Papers 2022-24, University of Paris Nanterre, EconomiX.
  • Handle: RePEc:drm:wpaper:2022-24
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    More about this item

    Keywords

    Commodity currencies; Uncertainty co-movement; Commodity prices; SVAR model;
    All these keywords.

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General

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