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

Working Paper 781 | Published September 24, 2021

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Authors

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: 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.




Online Appendix: Working Paper 782