Commodity currencies and the real exchange rate

This paper examines whether the real exchange rates of commodity-exporting countries and the real prices of their commodity exports move together over time. Using International Monetary Fund (IMF) data on the world prices of 44 commodities and national commodity export shares, we construct new monthly indices of national commodity export prices for 58 commodity-exporting countries over 1980-2002. Evidence of a long-run relationship between national real exchange rate and real commodity prices is found for about one-third of the commodity-exporting countries. The long-run real exchange rate of these 'commodity currencies' is not constant (as would be implied by purchasing power parity-based models) but is time varying, being dependent on movements in the real price of commodity exports. (c) 2004 Elsevier B.V. All rights reserved.