CEPII, Recherche et Expertise sur l'economie mondiale
Do Terms of Trade Drive Real Exchange Rates? Comparing Oil and Commodity Currencies

Virginie Coudert
Cécile Couharde
Valérie Mignon

 Highlights :

 Abstract :
This paper investigates whether terms of trade have an impact on real exchange rates for commodity exporters and oil exporters. To this end, we estimate a long term relationship between the real effective exchange rate and economic fundamentals, including the commodity terms of trade. The estimation relies on panel cointegration techniques and covers annual data from 1980 to 2007. Our results show that real exchange rates co-move with commodity prices in the long run and respond to oil price somewhat less than to commodity prices. We also find that some pegged currencies have been driven away from their equilibria by wild fluctuations in the key currencies, on which they are anchored.

 Keywords : Commodities | Oil | Terms of trade | Equilibrium real exchange rates | Anchor currencies | Panel cointegration

 JEL : C23, F31, O13
CEPII Working Paper
N°2008-32, December 2008

Non Technical Summary

Full text

BibTeX (with abstract),
plain text (with abstract),
RIS (with abstract)

 Fields of expertise

Money & Finance