Working Paper

Real Exchange Rates and Primary Commodity Prices: Mussa Meets Backus-Smith

Abstract: We show that explicitly modeling primary commodities in an otherwise totally standard incomplete markets open economy model can go a long way in explaining the Mussa puzzle and the Backus-Smith puzzle, two of the main puzzles in the international economics literature.

Keywords: Primary commodity prices; Mussa puzzle; Backus-Smith puzzle;

JEL Classification: F31; F41;

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Bibliographic Information

Provider: Federal Reserve Bank of Minneapolis

Part of Series: Working Papers

Publication Date: 2021-09-24

Number: 781