Commodity Currencies and Empirical Exchange Rate Puzzles

By Yu‐chin Chen, Kenneth S. Rogoff. Social Science Research Network, 2002

121 citations recorded by the source corpus.

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.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/0172224f0121d7b4744cd6981a31db84d364d42e

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Citations in the corpus

The Equilibrium Real Exchange Rate in a Commodity Exporting Country: Algeria's Experience (2005, background): “Furthermore, Choudhri and Khan (2004) found that Balassa-Samuelson effects are relevant for developing countries and that the terms of trade also influence the real exchange rate.”
Inflation Targets Versus International Monetary Integration - a Canadian Perspective (2005, background): “In more recent work, however, (Chen and Rogoff 2002), he has investigated commodity price effects on the exchange rates of Australia, 20 The equation in question was first developed in the early 1990s (see Amano and van Norden 1993, 1995) and, unusually in the exchange rate literature, it is still…”