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Real Exchange Rates and Commodity Prices
Author:
Dominique Yves Dupont null

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Mr. V. Hugo Juan-Ramon
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Series:
IMF Working Papers
Volume/Issue:
Volume 1996: Issue 027
Language:
English
Publication Date:
01 Apr 1996
DOI:
https://doi.org/10.5089/9781451844474.001
ISBN:
9781451844474
ISSN:
1018-5941
Pages:
66
Keywords:
WP; deutsche mark; excess demand; commodity price; soybean meal; market power; world demand; LTNCTAD commodity yearbook; long-terms elasticity; price expectation; commodity price in terms; commodity prices determination; dollar price of the commodity; price of the commodity; world price of a commodity; commodity world demand; Commodity prices; Agricultural commodities; Oil; Real exchange rates; Europe; dollar price
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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 examines the relations between fluctuations in real exchange rates among the major currencies and fluctuations in real commodity prices. Increased exchange rate volatility calls for a better understanding of these relations. To the best of our knowledge, no systematic study of those effects has been performed on a wide range of commodities, although Sjaastad and Scacciavillani (1993) have done so for gold. We build on their approach and construct a supply and demand multi-country model, with world market clearing, which incorporates speculative and non-speculative demands for inventories and “static” and “rational” expectations. We estimate the model using several econometric methods on monthly data from January 1972 to January 1992 for 65 commodity prices. The paper finds that, for a small group of commodities, the dollar-denominated price is significantly influenced by the deutsche mark and the yen. The empirical results show that geographical proximity matters, and that supply and demand elasticities are important in determining the commodity price in world markets above and beyond the size of the share of those commodities in world trade.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund