Testing the Present‐Value Model of the Exchange Rate with Commodity Currencies
Countries that specialize in commodity exports often exhibit a correlation between the relevant commodity price and the value of their currency. We explore an explanation for this correlation based on the present‐value, monetary model of the exchange rate. An increase in the commodity price leads to...
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| Veröffentlicht in: | Journal of money, credit and banking credit and banking, 2021-03, Vol.53 (2-3), p.589-596 |
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| container_end_page | 596 |
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| container_issue | 2-3 |
| container_start_page | 589 |
| container_title | Journal of money, credit and banking |
| container_volume | 53 |
| creator | DEVEREUX, MICHAEL B. SMITH, GREGOR W. |
| description | Countries that specialize in commodity exports often exhibit a correlation between the relevant commodity price and the value of their currency. We explore an explanation for this correlation based on the present‐value, monetary model of the exchange rate. An increase in the commodity price leads to an increase in the expected, future policy interest rate and so to an immediate appreciation. We test the model's over‐identifying restrictions for Canada, Australia, and New Zealand. There, controlling for the effect of commodity prices in predicting current and future monetary policy leaves those prices no significant, remaining role in statistically explaining exchange rates. |
| doi_str_mv | 10.1111/jmcb.12774 |
| format | Article |
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| identifier | ISSN: 0022-2879 |
| ispartof | Journal of money, credit and banking, 2021-03, Vol.53 (2-3), p.589-596 |
| issn | 0022-2879 1538-4616 |
| language | eng |
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| source | Wiley Online Library Journals Frontfile Complete |
| subjects | Analysis Appreciation Commodities commodity currency Commodity prices Currency exchange rate Exports Foreign exchange Foreign exchange rates Interest rates Monetary models Monetary policy Money Prices and rates Value |
| title | Testing the Present‐Value Model of the Exchange Rate with Commodity Currencies |
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