Real Exchange Rates and Primary Commodity Prices
Abstract: In this paper, we show that a substantial fraction of the volatility of real exchange rates between developed economies such as Germany, Japan, and the United Kingdom against the US dollar can be accounted for by shocks that affect the prices of primary commodities such as oil, aluminum, maize, or copper. Our analysis implies that existing models used to analyze real exchange rates between large economies that mostly focus on trade between differentiated ?nal goods could benefit, in terms of matching the behavior of real exchange rates, by also considering trade in primary commodities.
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Description: Full text
Provider: Federal Reserve Bank of Minneapolis
Part of Series: Working Papers
Publication Date: 2017-11-13
Pages: 55 pages