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What Makes a Commodity Currency?

Author

Listed:
  • Dongwon Lee

    (Department of Economics, University of California Riverside)

  • Yu-chin Chen

    (Department of Economics, University of Washington)

Abstract

The "commodity currency" literature highlights the robust exchange rate response to fluctuations in world commodity prices that occurs for major commodity exporters. The magnitude of this response, however, varies widely among countries. Our panel data analysis using 63 countries for 1980-2010 finds that, in accordance with theory, the long-run cointegrating relationship between the real exchange rate and commodity export prices depends on the nation’s export market structure, monetary policy choices and degree of trade and financial openness. We also show that the commodity price-exchange rate connection is much weaker in the short-run and for a group of oil-exporting countries. Given concerns for the Dutch disease or resource curse, our findings are of particular relevance for monetary policy-making and for globalization strategy in commodity-exporting developing economies.

Suggested Citation

  • Dongwon Lee & Yu-chin Chen, 2014. "What Makes a Commodity Currency?," Working Papers 201420, University of California at Riverside, Department of Economics.
  • Handle: RePEc:ucr:wpaper:201420
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    Cited by:

    1. Ahmed, Rashad, 2019. "Commodity Currencies and Causality: Some High-Frequency Evidence," MPRA Paper 98319, University Library of Munich, Germany, revised 25 Jan 2020.
    2. Anuar, Mohd Razealy & Abdullah, Ahmad Zuhairi, 2016. "Challenges in biodiesel industry with regards to feedstock, environmental, social and sustainability issues: A critical review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 58(C), pages 208-223.
    3. Yip, Pick Schen & Brooks, Robert & Do, Hung Xuan, 2017. "Dynamic spillover between commodities and commodity currencies during United States Q.E," Energy Economics, Elsevier, vol. 66(C), pages 399-410.
    4. Rodrigo da Silva Souza & Leonardo B. de Mattos & João E. de Lima, 2021. "Commodity prices and the Brazilian real exchange rate," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 3152-3172, April.
    5. Ahmed, Rashad, 2020. "Commodity currencies and causality: Some high-frequency evidence," Economics Letters, Elsevier, vol. 189(C).
    6. Ahmed, Rashad, 2019. "Currency Commodities and Causality: Some High-Frequency Evidence," MPRA Paper 96855, University Library of Munich, Germany.
    7. Chen, Yu-chin & Lee, Dongwon, 2018. "Market power, inflation targeting, and commodity currencies," Journal of International Money and Finance, Elsevier, vol. 88(C), pages 122-139.

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    More about this item

    Keywords

    Real exchange rate; Commodity prices; Panel cointegration; Commodity exports; Exchange rate regime; International reserves;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

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