Do commodity price volatilities impact currency misalignments in commodity-exporting countries ?

Mardi | 2019-09-17
Salle des thèses 16h – 17h20

Cyriac GUILLAUMIN – Salem Boubakri – Alexandre SILANINE

The aim of this paper is to investigate the relationship between the real effective exchange rate misalignments and the real commodity price volatilities in a sample of 46 commodity-exporting countries, taking into account the level of financial development as the transition variable. We first estimate the currency misalignments as the deviation of the observed real effective exchange rates from their equilibrium values estimated using the BEER approach. Then, we rely on the panel smooth transition regression model to estimate the non-linear impact of commodity price volatilities on currency misalignments. Our results show that the estimated coefficients are highly significant and demonstrate that the volatility of the real commodity prices has a non-linear impact on the currency misalignments, depending on the degree of the country’s financial development. The results also highlight different dynamics based on the type of commodity exported by the country and its level of financialization.