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Primary commodity prices, the business cycle and the real exchange rate of the dollar (English)

An empirical stylized fact is that primary exporters terms of trade worsen when the dollar appreciates and improves when the dollar depreciates. In our theoretical analysis, we demonstrate that a depreciation of the dollar will worsen a primary exporters terms of trade, the smaller the US share in the world market for the primary commmodity, the lower the US demand elasticty for that good, and the larger the US share in the exporter's imports. We present empirical findings that support the theoretical analysis. Also, we find strong cyclical sensitivity of real commodity prices and evidence of their secular decline.

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Citation

Fleisig, Heywood van Wijnbergen, Sweder

Primary commodity prices, the business cycle and the real exchange rate of the dollar (English). Country Policy Department discussion paper,no. CPD 1985-19 Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/238311492000793298/Primary-commodity-prices-the-business-cycle-and-the-real-exchange-rate-of-the-dollar