Real Exchange Rates and Commodity Prices
IMF Working Papers, April 1, 1996
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Bibliographic details
- Authors: Dominique Yves Dupont, V. Hugo Juan-Ramon
- Published: April 1, 1996
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451844474.001
Research question and motivation
- Examines relations between fluctuations in real exchange rates among the major currencies and fluctuations in real commodity prices.
- Motivation: Increased exchange rate volatility calls for a better understanding of these relations.
- Notes gap: "To the best of our knowledge, no systematic study of those effects has been performed on a wide range of commodities," with existing work (Sjaastad and Scacciavillani (1993)) focused on gold.
Model and methodology
- Builds on Sjaastad and Scacciavillani’s approach and constructs a supply and demand multi-country model with world market clearing.
- Model features:
- Incorporates speculative and non-speculative demands for inventories.
- Incorporates “static” and “rational” expectations.
- Estimation approach:
- Uses several econometric methods.
- Monthly data from January 1972 to January 1992.
- Sample covers 65 commodity prices.
Key empirical findings
- For a small group of commodities, the dollar-denominated price is significantly influenced by the deutsche mark and the yen.
- Geographical proximity matters in determining commodity prices in world markets.
- Supply and demand elasticities are important determinants of commodity prices in world markets, above and beyond the size of the share of those commodities in world trade.
Scope and subject tags
- Subjects: Agricultural commodities, Commodities, Commodity prices, Foreign exchange, Oil, Prices, Real exchange rates.
- Keywords: Agricultural commodities, commodity price, commodity price in terms, Commodity prices, commodity prices determination, commodity world demand, deutsche mark, dollar price, dollar price of the commodity, Europe, excess demand, long-terms elasticity, LTNCTAD commodity yearbook, market power, Oil, price expectation, price of the commodity, Real exchange rates, soybean meal, world demand, world price of a commodity, WP.