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Real Exchange Rates and Commodity Prices in Neoclassical Model
Author:
International Monetary Fund
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Series:
IMF Working Papers
Volume/Issue:
Volume 1988: Issue 055
Language:
English
Publication Date:
01 Jan 1988
DOI:
https://doi.org/10.5089/9781451968859.001
ISBN:
9781451968859
ISSN:
1018-5941
Pages:
46
Keywords:
WP; commodity price; supply shock; fiscal policy; commodity supply; CRB commodity index; commodity-importing country; world commodity supplies increase; real exchange rate; prices commodity supply; commodity input; commodity price trend; clearing relationship; commodity price-exchange rate linkage; commodity market analysts; IMF world commodity index; Real exchange rates; Commodity prices; Commodity markets; Exchange rates
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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. MASTER FILES ROOM C-130 001
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund