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On the impact of volatility on the real exchange rate - terms of trade nexus: Revisiting commodity currencies

Author

Listed:
  • Virginie Coudert
  • Cécile Couharde

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Valérie Mignon

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

Abstract
The aim of this paper is to study the relationship between terms of trade and real exchange rates in commodity-producing countries on both the short and the long run. We investigate potential non-linearity in the real exchange rate – terms of trade nexus according to the level of volatility in commodity and financial markets. To this end, we consider a panel of 68 commodity exporters, split in sub-samples of advanced, intermediate and low-income countries. We first show that there is a long-run relationship between real exchange rates and terms of trade, taking also into account productivity and net foreign assets. Then, we run panel smooth transition regressions to estimate the adjustment process of the real effective exchange rate to its equilibrium value depending on different proxies of volatility. Our results show that only advanced oil-exporters' currencies are sensitive to changes in terms of trade in the short run especially when volatility is high on commodity markets.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Virginie Coudert & Cécile Couharde & Valérie Mignon, 2015. "On the impact of volatility on the real exchange rate - terms of trade nexus: Revisiting commodity currencies," Post-Print hal-01385992, HAL.
    • Handle: RePEc:hal:journl:hal-01385992
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    9. Jair N. Ojeda-Joya & Gloria Sarmiento, 2018. "Sovereign risk and the real exchange rate: A non-linear approach," International Economics, CEPII research center, issue 156, pages 1-14.
    10. Kharrat, Sabrine & Hammami, Yacine & Fatnassi, Ibrahim, 2020. "On the cross-sectional relation between exchange rates and future fundamentals," Economic Modelling, Elsevier, vol. 89(C), pages 484-501.
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    20. Ahmed, Syed Shujaat, 2019. "Oil Prices and Exchange Rate with Impact of Pre-Dollar and Post-Dollar Regime Dummies," MPRA Paper 92313, University Library of Munich, Germany.
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    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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