Commodity Currencies and Empirical Exchange Rate Puzzles

47 Pages Posted: 29 Jan 2006

See all articles by Yu-Chin Chen

Yu-Chin Chen

Harvard University

Kenneth Rogoff

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: February 2002

Abstract

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.

Keywords: Exchange rate, commodity price stocks, capital flows

JEL Classification: F-31, F-41

Suggested Citation

Chen, Yu-Chin and Rogoff, Kenneth S., Commodity Currencies and Empirical Exchange Rate Puzzles (February 2002). IMF Working Paper, Vol. , pp. 1-47, 2002. Available at SSRN: https://ssrn.com/abstract=879381

Yu-Chin Chen (Contact Author)

Harvard University ( email )

Cambridge, MA 02138
United States

Kenneth S. Rogoff

Harvard University - Department of Economics ( email )

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