Commodity Currencies and Empirical Exchange Rate Puzzles
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Summary:
This paper re-examines empirical exchange rate puzzles by focusing on three OECD economies (Australia, Canada, and New Zealand) where primary commodities constitute a significant share of their exports. For Australia and New Zealand especially, we find that the U.S. dollar price of their commodity exports (generally exogenous to these small economies) —has a strong and stable influence on their floating real rates, with the quantitative magnitude of the effects consistent with predictions of standard theoretical models. However, after controlling for commodity price shocks, there is still a PPP puzzle in the residual. Nevertheless, the results here are relevant to many developing country commodity exporters, as they liberalize their capital markets and move towards floating exchange rates.
Series:
Working Paper No. 2002/027
Subject:
Commodity prices Currencies Exchange rates Foreign exchange International trade Money Prices Real exchange rates Terms of trade
English
Publication Date:
February 1, 2002
ISBN/ISSN:
9781451844535/1018-5941
Stock No:
WPIEA0272002
Pages:
46
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