Real Exchange Rates and Commodity Prices in a Neoclassical Model

46 Pages Posted: 15 Feb 2006  

Carmen M. Reinhart

Peter G. Peterson Institute for International Economics; National Bureau of Economic Research (NBER)

Date Written: June 30, 1988

Abstract

This paper presents a neoclassical model that explains the observed empirical relationship between government spending and world commodity supplies and the real exchange rate and real commodity prices. It is shown that fiscal expansion and increasing world commodity supplies simultaneously lead to an appreciation of the real exchange rate and a decline in relative commodity prices. This structural model is estimated and its forecasting performance is compared to a variety of models. We find that theory and structure help in predicting commodity prices, although not the exchange rate, and that predictive ability increases as the forecast horizon is lengthened.

JEL Classification: 1320, 3210

Suggested Citation

Reinhart, Carmen M., Real Exchange Rates and Commodity Prices in a Neoclassical Model (June 30, 1988). IMF Working Paper, Vol. , pp. 1-46, 1988. Available at SSRN: https://ssrn.com/abstract=884848

Carmen M. Reinhart (Contact Author)

Peter G. Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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