[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/ctl/louvir/2019011.html
   My bibliography  Save this paper

Currency Collapses and Output Dynamics in Commodity Dependent Countries

Author

Listed:
  • Vincent Bodart

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

  • Jean-François Carpantier

    (Aix-Marseille University, CERGAM)

Abstract
This paper provides new empirical evidence on the relationship between currency collapses (i.e. large nominal depreciations or devaluations) and real output by paying a specific attention to commodity exporting countries. Using a dataset including 108 emerging and developing economies for the period 1970-2016, we document and estimate what happens to output growth during episodes of currency collapses for commodity-dependent and non commodity-dependent countries. One particular feature of our analysis is to control for war events. We find that currency crises occur more frequently in commodity-dependent countries (one crisis every 17 years versus 30 years for non commodity-dependent countries) and with a larger magnitude (median depreciation about 12 percent points larger for commodity-dependent countries). In both groups of countries, output growth declines in response to the currency collapse. It appears however that output growth starts to slowdown earlier in commodity-dependent countries while the impact is more persistent in non commodity-dependent countries. The magnitude of the output growth slowdown is very close between the two groups of countries. Finally, we find that the output growth-currency collapse relationship differs among commodity-dependent countries according to the category of their main exported commodity.

Suggested Citation

  • Vincent Bodart & Jean-François Carpantier, 2019. "Currency Collapses and Output Dynamics in Commodity Dependent Countries," LIDAM Discussion Papers IRES 2019011, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    • Handle: RePEc:ctl:louvir:2019011
    as

    Download full text from publisher

    File URL: https://sites.uclouvain.be/econ/DP/IRES/2019011.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Cashin, Paul & Cespedes, Luis F. & Sahay, Ratna, 2004. "Commodity currencies and the real exchange rate," Journal of Development Economics, Elsevier, vol. 75(1), pages 239-268, October.
    2. Ing-Haw Cheng & Wei Xiong, 2014. "Financialization of Commodity Markets," Annual Review of Financial Economics, Annual Reviews, vol. 6(1), pages 419-441, December.
    3. Bussière, Matthieu & Saxena, Sweta C. & Tovar, Camilo E., 2012. "Chronicle of currency collapses: Re examining the effects on output," Journal of International Money and Finance, Elsevier, vol. 31(4), pages 680-708.
    4. Bodart, V. & Candelon, B. & Carpantier, J.-F., 2012. "Real exchanges rates in commodity producing countries: A reappraisal," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1482-1502.
    5. Yu-Chin Chen & Kenneth S. Rogoff & Barbara Rossi, 2010. "Can Exchange Rates Forecast Commodity Prices?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(3), pages 1145-1194.
    6. Luc Laeven & Fabian Valencia, 2020. "Systemic Banking Crises Database II," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 68(2), pages 307-361, June.
    7. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2012. "External adjustment and the global crisis," Journal of International Economics, Elsevier, vol. 88(2), pages 252-265.
    8. Gian Maria Milesi Ferretti & Assaf Razin, 2000. "Current Account Reversals and Currency Crises: Empirical Regularities," NBER Chapters, in: Currency Crises, pages 285-323, National Bureau of Economic Research, Inc.
    9. Frankel, Jeffrey A & Rose, Andrew K, 1996. "Currency Crashes in Emerging Markets: Empirical Indicators," CEPR Discussion Papers 1349, C.E.P.R. Discussion Papers.
    10. Benedicte Vibe Christensen, 2016. "Challenges of low commodity prices for Africa," BIS Papers, Bank for International Settlements, number 87.
    11. Kristin J Forbes, 2002. "How Do Large Depreciations Affect Firm Performance?," IMF Staff Papers, Palgrave Macmillan, vol. 49(Special i), pages 214-238.
    12. Bodart, Vincent & Candelon, Bertrand & Carpantier, Jean-Francois, 2015. "Real exchanges rates, commodity prices and structural factors in developing countries," Journal of International Money and Finance, Elsevier, vol. 51(C), pages 264-284.
    13. Markus Brückner & Antonio Ciccone, 2010. "International Commodity Prices, Growth and the Outbreak of Civil War in Sub-Saharan Africa," Economic Journal, Royal Economic Society, vol. 120(544), pages 519-534, May.
    14. Paul Cashin & Hong Liang & C. John McDermott, 2000. "How Persistent Are Shocks to World Commodity Prices?," IMF Staff Papers, Palgrave Macmillan, vol. 47(2), pages 1-2.
    15. Aqib Aslam & Samya Beidas-Strom & Mr. Rudolfs Bems & Oya Celasun & Zsoka Koczan, 2016. "Trading on Their Terms? Commodity Exporters in the Aftermath of the Commodity Boom," IMF Working Papers 2016/027, International Monetary Fund.
    16. Michael Bleaney, 2005. "The Aftermath of a Currency Collapse: How Different are Emerging Markets?," The World Economy, Wiley Blackwell, vol. 28(1), pages 79-89, January.
    17. Chen, Yu-chin & Rogoff, Kenneth, 2003. "Commodity currencies," Journal of International Economics, Elsevier, vol. 60(1), pages 133-160, May.
    18. Jeffrey A. Frankel, 2008. "The Effect of Monetary Policy on Real Commodity Prices," NBER Chapters, in: Asset Prices and Monetary Policy, pages 291-333, National Bureau of Economic Research, Inc.
    19. Frankel, Jeffrey A. & Rose, Andrew K., 1996. "Currency crashes in emerging markets: An empirical treatment," Journal of International Economics, Elsevier, vol. 41(3-4), pages 351-366, November.
    20. Gupta, Poonam & Mishra, Deepak & Sahay, Ratna, 2007. "Behavior of output during currency crises," Journal of International Economics, Elsevier, vol. 72(2), pages 428-450, July.
    21. Markus Bruckner & Antonio Ciccone, 2010. "International Commodities Prices, Growth and the Outbreak of Civil War in Sub-Saharan Africa," Working Papers 1008, BBVA Bank, Economic Research Department.
    22. Nils Petter Gleditsch & Peter Wallensteen & Mikael Eriksson & Margareta Sollenberg & Hã…Vard Strand, 2002. "Armed Conflict 1946-2001: A New Dataset," Journal of Peace Research, Peace Research Institute Oslo, vol. 39(5), pages 615-637, September.
    23. James D. Fearon, 2005. "Primary Commodity Exports and Civil War," Journal of Conflict Resolution, Peace Science Society (International), vol. 49(4), pages 483-507, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Vincent Bodart & François Courtoy & Erica Perego, 2021. "World Interest Rates and Macroeconomic Adjustments in Developing Commodity Producing Countries," Working Papers 2021-01, CEPII research center.
    2. Zuzana Rowland & George Lazaroiu & Ivana Podhorská, 2020. "Use of Neural Networks to Accommodate Seasonal Fluctuations When Equalizing Time Series for the CZK/RMB Exchange Rate," Risks, MDPI, vol. 9(1), pages 1-21, December.
    3. Bodart, Vincent & Carpantier, Jean-François, 2023. "Currency crises in emerging countries: The commodity factor," Journal of Commodity Markets, Elsevier, vol. 30(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Cyriac Guillaumin & Salem Boubakri & Alexandre Silanine, 2020. "Do commodity price volatilities impact currency misalignments in commodity-exporting countries?," Economics Bulletin, AccessEcon, vol. 40(2), pages 1727-1739.
    2. Bodart, Vincent & Carpantier, Jean-François, 2023. "Currency crises in emerging countries: The commodity factor," Journal of Commodity Markets, Elsevier, vol. 30(C).
    3. Dongwon Lee & Yu-chin Chen, 2014. "What Makes a Commodity Currency?," Working Papers 201420, University of California at Riverside, Department of Economics.
    4. Blaise Gnimassoun & Marc Joëts & Tovonony Razafindrabe, 2016. "On the link between current account and oil price fluctuations in diversified economies: The case of Canada," Working Papers hal-04141574, HAL.
    5. Barthélémy, Sylvain & Binet, Marie-Estelle & Pentecôte, Jean-Sébastien, 2020. "Worldwide economic recoveries from financial crises through the decades," Journal of International Money and Finance, Elsevier, vol. 105(C).
    6. Arezki, Rabah & Dumitrescu, Elena & Freytag, Andreas & Quintyn, Marc, 2014. "Commodity prices and exchange rate volatility: Lessons from South Africa's capital account liberalization," Emerging Markets Review, Elsevier, vol. 19(C), pages 96-105.
    7. Erler, Alexander & Bauer, Christian & Herz, Bernhard, 2015. "To intervene, or not to intervene: Monetary policy and the costs of currency crises," Journal of International Money and Finance, Elsevier, vol. 51(C), pages 432-456.
    8. Gnimassoun, Blaise & Joëts, Marc & Razafindrabe, Tovonony, 2017. "On the link between current account and oil price fluctuations in diversified economies: The case of Canada," International Economics, Elsevier, vol. 152(C), pages 63-78.
    9. Samuel Brazys & Krishna Chaitanya Vadlamannati & Indra de Soysa, 2019. "Oil Price Volatility and Political Unrest: Prudence and Protest in Producer and Consumer Societies, 1980-2013," Working Papers 201908 Key words: Oil wea, Geary Institute, University College Dublin.
    10. Jean-François Carpantier, 2021. "Commodity Prices in Empirical Research," Dynamic Modeling and Econometrics in Economics and Finance, in: Gilles Dufrénot & Takashi Matsuki (ed.), Recent Econometric Techniques for Macroeconomic and Financial Data, pages 199-227, Springer.
    11. Mahdi Yazdani & Mohammad Nikzad, 2021. "Output Losses from Currency Crises and the Role of Central Bank," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 10(3), pages 79-97.
    12. Wang, Wenhao & Cheung, Yin-Wong, 2023. "Commodity price effects on currencies," Journal of International Money and Finance, Elsevier, vol. 130(C).
    13. Martin Enilov, 2024. "The predictive power of commodity prices for future economic growth: Evaluating the role of economic development," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(3), pages 3040-3062, July.
    14. Stijn Claessens & M. Ayhan Kose, 2013. "Financial Crises: Explanations, Types and Implications," CAMA Working Papers 2013-06, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    15. Mohammad Karimi & Marcel‐Cristian Voia, 2019. "Empirics of currency crises: A duration analysis approach," Review of Financial Economics, John Wiley & Sons, vol. 37(3), pages 428-449, July.
    16. Ornelas, José Renato Haas & Mauad, Roberto Baltieri, 2019. "Volatility risk premia and future commodity returns," Journal of International Money and Finance, Elsevier, vol. 96(C), pages 341-360.
    17. Go, You-How & Lau, Wee-Yeap, 2021. "Extreme risk spillovers between crude palm oil prices and exchange rates," The North American Journal of Economics and Finance, Elsevier, vol. 58(C).
    18. Rémi Bazillier & Jérôme Hericourt, 2017. "The Circular Relationship Between Inequality, Leverage, And Financial Crises," Journal of Economic Surveys, Wiley Blackwell, vol. 31(2), pages 463-496, April.
    19. Chen, Yu-chin & Lee, Dongwon, 2018. "Market power, inflation targeting, and commodity currencies," Journal of International Money and Finance, Elsevier, vol. 88(C), pages 122-139.
    20. Verme, Paolo & Schuettler, Kirsten, 2021. "The impact of forced displacement on host communities: A review of the empirical literature in economics," Journal of Development Economics, Elsevier, vol. 150(C).

    More about this item

    Keywords

    Currency crises; nominal depreciations; commodity currencies; exchange rates; output growth; recovery;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ctl:louvir:2019011. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Virginie LEBLANC (email available below). General contact details of provider: https://edirc.repec.org/data/iruclbe.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.