Real Exchange Rates and Commodity Prices

By Dominique Yves Dupont, V. Hugo Juan-Ramon

April 1, 1996

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Dominique Yves Dupont, and V. Hugo Juan-Ramon Real Exchange Rates and Commodity Prices, (USA: International Monetary Fund, 1996) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper examines the relations between fluctuations in real exchange rates among the major currencies and fluctuations in real commodity prices. Increased exchange rate volatility calls for a better understanding of these relations. To the best of our knowledge, no systematic study of those effects has been performed on a wide range of commodities, although Sjaastad and Scacciavillani (1993) have done so for gold. We build on their approach and construct a supply and demand multi-country model, with world market clearing, which incorporates speculative and non-speculative demands for inventories and “static” and “rational” expectations. We estimate the model using several econometric methods on monthly data from January 1972 to January 1992 for 65 commodity prices. The paper finds that, for a small group of commodities, the dollar-denominated price is significantly influenced by the deutsche mark and the yen. The empirical results show that geographical proximity matters, and that supply and demand elasticities are important in determining the commodity price in world markets above and beyond the size of the share of those commodities in world trade.

Subject: 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

Publication Details

Pages:

66
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1996/027
Stock No:

WPIEA0271996
ISBN:

9781451844474
ISSN:

1018-5941

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