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Real Exchange Rates and Primary Commodity Prices

Working Paper 743 | Published November 14, 2017

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Joao Ayres Inter-American Development Bank
Constantino Hevia Universidad Torcuato Di Tella
Juan Pablo Nicolini Senior Research Economist and Universidad Torcuato Di Tella
Real Exchange Rates and Primary Commodity Prices


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 final goods could benefit, in terms of matching the behavior of real exchange rates, by also considering trade in primary commodities.

Published in _Journal of International Economics_ (January 2020, article 103261),