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Will the Emergence of the Euro Affect World Commodity Prices?

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Abstract

The emergence of the Euro as a key currency, perhaps eventually rivaling the U.S.dollar in importance, may have important macroeconomic implications for industrial as well as developing economies in the years ahead. This paper focuses on two related questions. First, what effects, if any, will the Euro have on the volatility of world primary commodity prices? Second, why should the impact of the Euro on real commodity prices be of interest to economic analysts and policy makers? Our econometric analysis provides evidence that episodes of internal stability of exchange rates among the 11 Euro countries during 1957-98 were associated with periods of lower real commodity price volatility. These stabilizing effects are statistically significant for fertilizer, metals and petroleum, and cereals. A reasonable inference, therefore, is that the establishment of the Euro on January 1, 1999 should be expected to contribute to reduced volatility of world commodity prices, other things equal, if the alternative is the higher euro-11 volatility in the 1970s. On the other hand, a move from the relatively stable euro-11environment of the early 1990s to a single currency (with zero intra-Euro-11 volatility) will have only a modest impact (reducing) commodity price volatility.

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  • John T. Cuddington & Hong Liang, 2000. "Will the Emergence of the Euro Affect World Commodity Prices?," Working Papers 00-01, Georgetown University, Department of Economics.
  • Handle: RePEc:geo:guwopa:gueconwpa~00-00-01
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    3. René Lalonde & Zhenhua Zhu & Frédérick Demers, 2003. "Forecasting and Analyzing World Commodity Prices," Money Affairs, CEMLA, vol. 0(1), pages 1-30, January-J.

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    More about this item

    Keywords

    Commodity Prices; Volatility; Exchange Rate Regimes; Euro;
    All these keywords.

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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