The Volatility of the Relative Price of Commodities In Terms of Manufactures Across Exchange Regimes: A Theoretical Model

December 1, 1998

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Format: Chicago

Hong Liang. The Volatility of the Relative Price of Commodities In Terms of Manufactures Across Exchange Regimes: A Theoretical Model, (USA: International Monetary Fund, 1998) 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 investigates the relationship between the nominal exchange rate regime and the volatility of relative commodity prices. The analysis shows that the relationship depends upon both the market structure and the economic agent’s perception about future exchange rate movements. When the markets for manufactured goods are less competitive than the markets for primary commodities, the volatility of relative commodity prices rises when exchange rate uncertainty increases. If demand for manufactured goods is intertemporally dependent, even a small increase in exchange rate uncertainty can result in potentially large costs in terms of increased relative commodity price instability.

Subject: Commodity price fluctuations, Commodity prices, Exchange rate adjustments, Exchange rate arrangements, Exchange rates, Foreign exchange, Prices

Keywords: Commodity price fluctuations, Commodity prices, Exchange rate, Exchange rate adjustments, Exchange rate arrangements, Exchange rate movement, Exchange rate pass-through, Exchange rate regime, Exchange rate uncertainty, Exchange rate variability, Exchange rates, Exchange regimes, Foreign currency price of commodity input, Input cost change, Input price, Medium run price rigidity, Price-exchange rate relationship, Relative commodity price, WP

Publication Details

Pages:

21
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1998/163
Stock No:

WPIEA1631998
ISBN:

9781451980639
ISSN:

1018-5941

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