natural resources curse or blessing are natural resources a curse or a blessing the empirical evidence suggests that either outcome is possible this paper surveys a variety of hypotheses and supporting evidence for why some countries benefit and others lose from the presence of natural resources these include that a resource bonanza induces appreciation of the real exchange rate deindustrialization and bad growth prospects and that these adverse effects are more severe in volatile countries with bad institutions and lack of rule of law corruption presidential democracies and underdeveloped financial systems another hypothesis is that a resource boom reinforces rent grabbing and civil conflict especially if institutions are bad induces corruption especially in nondemocratic countries and keeps in place bad policies finally resource rich developing economies seem unable to successfully convert their depleting exhaustible resources into other productive assets the survey also offers some welfare based fiscal rules for harnessing resource windfalls in developed and developing economies

exploring the core factors and its dynamic effects on oil price an application on path analysis and bvar tvp model abstract as the uncertainty of oil price increases impacts of the influential factors on oil price vary over time it is of great importance to explore the core factors and its time varying influence on oil price in view of this based on the path analysis model this paper obtains the core factors builds an oil price system var model which uses demand supply price and inventory as endogenous variables and china s net imports as well as dollar index as exogenous variables then we set up a bvar tvp time varying parameter model to analyze dynamic impacts of core factors on oil price the results show that 1 oil prices became more sensitive to oil supply changes and the influence delays became shorter 2 the impact of oil inventories on oil prices with a time lag of two quarters but has a downward trend 3 the impact of oil consumption on oil prices with a time lag of two quarters and this effect is increasingly greater 4 the us dollar index is always the important factor of oil price and its control power increases gradually and the financial crisis occurred in 2008 further strengthens the influence of us dollar

crude oil corn ethanol nexus a contextual approach this paper offers a holistic study on the complex relationships between crude oil corn and ethanol during a turbulent period between 2006 and end of 2011 through a holistic mapping of the current market situation and a contextual analytical design we show that there exists a strong relationship between crude oil and corn markets on one side and crude oil and ethanol on the other however the price relationship between corn and ethanol was revealed to be less straightforward and is driven by the us government fuel policy furthermore the study indicates that corn markets have became more prone to volatility due to ethanol production especially when the demand for corn is high and or the crude oil prices are high enough to create a competitive market for ethanol

co movement of international crude oil price and indian stock market evidences from nonlinear cointegration tests this article explores nonlinear cointegration between international crude oil price and indian stock market in a multivariate framework for the period january 2 2003 to july 29 2011 by threshold cointegration tests which determine the structural breaks endogenously the tests reject any long run equilibrium relationship among the variables for the entire data span in order to get better insight threshold cointegration tests have been applied on three sub phases prior phase i and post phase iii to most volatile phase phase ii spanning from july 2 2007 to dec 29 2008 the tests suggest existence of cointegration in phase iii only toda yamamoto version of granger causality tests reveals that movements of international crude oil price have impact on indian stock market in phases ii and iii with no feedback effect the findings also suggest that global crude oil price is exogenously determined

commodity currencies and causality some high frequency evidence abstract i investigate the link between economic fundamentals and exchange rate adjustment to commodity price fluctuations i overcome the traditional issue of simultaneity by exploiting the september 14 2019 drone attack on two saudi arabian refineries as a natural experiment this unanticipated event caused the largest 1 day global crude oil price shock in over a decade using high frequency exchange rate data for 30 countries i link the cross section of exchange rate movements around the event to country specific fundamentals and currency risk factors crude export and import intensities were associated with appreciation depreciation additionally countries with higher policy interest rates and weaker financial positions experienced greater currency depreciation while safe haven currencies appreciated consistent with risk off sentiment triggering carry trades to unwind estimated pre event crude oil and vix betas can also explain the cross section of exchange rate adjustment and these currency risk factors are tightly associated with oil related and financial fundamentals respectively

the great appreciation the great depreciation and the purchasing power parity hypothesis abstract although there has been much recent work on purchasing power parity ppp neither univariate nor panel methods have produced strong rejections of unit roots in us dollar real exchange rates for industrialized countries during the post 1973 period we investigate the hypothesis that these non rejections can be explained by one episode the large appreciation and depreciation of the dollar in the 1980s by developing unit root tests which account for this event and maintain long run ppp using panel methods we can strongly reject the unit root null for those countries that adhere to the typical pattern of the dollar s rise and fall

booms and slumps in world commodity prices abstract this paper examines the duration and magnitude of cycles in world commodity prices cycles are a dominant feature of commodity prices and dealing with the economic consequences of booms and slumps in prices continues to be one of the most challenging issues facing policymakers in commodity exporting developing countries we find that there is an asymmetry in commodity price cycles as price slumps last longer than price booms how far prices fall in a slump is found to be slightly larger than how far they tend to rebound in a subsequent boom in addition for most commodities the probability of an end to a slump boom in prices is independent of the time already spent in the slump boom

tests for parameter instability in regressions with i 1 processes this article derives the large sample distributions of lagrange multiplier lm tests for parameter instability against several alternatives of interest in the context of cointegrated regression models the fully modified estimator of phillips and hansen is extended to cover general models with stochastic and deterministic trends the test statistics considered include the supf test of quandt as well as the lm tests of nyblom and of nabeya and tanaka it is found that the asymptotic distributions depend on the nature of the regressor processes that is if the regressors are stochastic or deterministic trends the distributions are noticeably different from the distributions when the data are weakly dependent it is also found that the lack of cointegration is a special case of the alternative hypothesis considered an unstable intercept so the tests proposed here may also be viewed as a test of the null of cointegration against the alternative of no cointegration the tests are applied to three data se

nontraded assets and the capm abstract asset pricing models that rely on the presence of non tradable assets such as human wealth to solve the equity premium puzzle have to confront the effect of decreasing absolute risk aversion rich investors who according to micro data hold the stock market and whose behavior is the one that matters at the margin for the determination of equilibrium asset prices are less risk averse ceteris paribus than the average consumer this paper highlights a channel through which the effect of decreasing absolute risk aversion can be overcome the existence of a positive correlation between the rates of return on traded assets and on the human capital of marginal investors

interest rates and currency prices in a two country world abstract this paper is a theoretical study of the determination of prices interest rates and currency exchange rates set in an infinitely lived two country world which is subject both to stochastic endowment shocks and to monetary instability formulas are obtained for pricing all equity claims nominally denominated bonds and currencies and these formulas are related to earlier closely related results in the theories of money finance international trade

real exchange rate fluctuations and the relative importance of nontradables abstract the real exchange rate is one of the most important price variables in macroeconomics as changes in it have implications for both external competitiveness as well as internal sectoral resource allocation this paper decomposes real exchange rate volatility into its two components for a panel of 51 economies over the period 1990 2010 and specifically estimates the relative importance of internal prices in real exchange rate fluctuations unlike other studies this paper goes a step further and examines the role of a set of economic fundamentals in explaining the relative contribution of the non traded component in real exchange rate fluctuations

assessment of the relationship between oil prices and us oil stocks abstract this paper qualitatively and quantitatively analyzes the relationship between us monthly ending oil stocks position with that of west texas intermediate wti oil prices from february 1995 to july 2004 the paper concludes if other things are held constant wti is inversely related to the petroleum products ppp combined petroleum products and crude oil cppp crude oil alone crude total oil stocks including petroleum products crude oil and strategic petroleum reserves spr total total gasoline tgo total distillate tdo it could not establish a statistically significant and negative relationship with spr when run alone one percent increase decrease in cppp ppp crude total tgo and tdo leads to decrease increase in wti respectively by 0 70 0 43 0 37 0 97 0 26 and 0 21 percent oil prices are largely influenced by total crude and crude and ppp inventories levels while modestly with variations in gasoline and distillate stocks levels despite a healthy increase of over 22 percent in spr from january 2001 to april 2004 it did not result in easing of oil prices primarily because spr are meant for security of supply concern and are only released under extreme conditions by the president of united states they are neither meant for the purposes of balancing supply demand gap nor for the stability of oil prices the aggressive spr buildup in recent years is related to international terrorism geopolitical situation in the middle east particularly in iraq that encourages us government to enhance its spr to meet any short term eventuality the analyst must keep a close eye on cppp and the total oil stocks variation to forecast wti in the short run whilst gasoline and distillate influence oil prices modestly in the short run spr on the other hand are expected to play a pivotal role in balancing oil prices and in providing a critical resource for the economy in case of any major shortfall in the long run

commodity currencies and equity flows abstract this paper analyzes the relationship among the prices of natural resources returns on equity and nominal exchange rates of the developed countries where primary commodities are an important share of exports australia canada and new zealand it is found that the portfolio rebalancing motive of hau and rey hau h rey h 2006 exchange rates equity prices and capital flows review of financial studies 19 1 273 317 is weaker for these countries one possible explanation of this finding is that commodity prices due to their flexibility play a special role in the transmission of shocks by linking equity markets across countries and reducing the need for portfolio rebalancing

the impact of oil shocks on exchange rates a markov switching approach abstract this paper uses markov switching models to investigate the impact of oil shocks on real exchange rates for a sample of oil exporting and oil importing countries this is an important topic to study because an oil shock can affect a country s terms of trade which can affect its competitiveness we detect significant exchange rate appreciation pressures in oil exporting economies after oil demand shocks we find limited evidence that oil supply shocks affect exchange rates global economic demand shocks affect exchange rates in both oil exporting and importing countries though there is no systematic pattern of appreciating and depreciating real exchange rates the results lend support to the presence of regime switching for the effects of oil shocks on real exchange rates

the nexus between oil price and russia s real exchange rate better paths via unconditional vs conditional analysis abstract instead of analyzing the causality between two time series unconditional analysis as it is usually done the present study deals with the nexus between oil price and russia s real exchange rate conditioning upon potential control variables at well specified horizons and on a frequency by frequency basis this research accounts also for the possible transient linkages and signal discontinuities a major finding of this paper is deeply suggestive of a sharp causality running from oil price to real exchange rate in lower frequencies this implies that russia should better tackle with turbulence triggered by oil price and continue to reduce its energy dependency via drastic and proactive measures the economic and fiscal initiatives of putin administration may help to cope with sudden shocks to lessen the great oil dependence and to build confidence needed for economic recovery while our research does not say much about the routes through which oil price may affect differently real exchange rate it clearly indicates the presence of short term relationship conditional to gdp government expenditures terms of trade and productivity differential the conditional analysis and signal detection appear as meaningful exercises to find new insights into the focal issue

new directions for stochastic open economy models the paper develops a simple stochastic new open economy macroeconomic model based on sticky nominal wages explicit solution of the wage setting problem under uncertainty allows one to analyze the effects of the monetary regime on welfare expected output and the expected terms of trade despite the potential interplay between imperfections due to sticky wages and monopoly the optimal monetary policy rule has a closed form solution to motivate our model we show that observed correlations between terms of trade and exchange rates are more consistent with our traditional assumptions about nominal rigidities than with a popular alternative based on local currency pricing 2000 elsevier science b v all rights reserved

demand for india s manufactured exports abstract surprisingly few estimates exist of disaggregated world demand functions for ldc exports despite the obvious policy importance of the inherent price elasticities time series simultaneous equation estimates are herein presented of world demand for 23 categories of manufactured exports from india tests for homotheticity separability whether price elasticity of demand differs during world recession and for effects of foreign learning about india s exports are reported estimated price elasticities range from below unity to infinity revealing important variations masked by aggregate studies these results raise considerable doubts about policy design from a uniform small country assumption

output value risk for commodity producers the uncertain benefits of diversification summary commodity price volatility has long been recognized as a main risk for commodity producers welfare and has led to diversification efforts less noticed has been the importance of commodity correlations and their increase after 2006 in the risk faced by producers to assess their impact we perform an empirical analysis of the market value of commodity producers output in a sample of 56 countries producing 26 commodities we find that diversification and correlations strongly explain output value volatility during 1987 2006 producers effectively specialized in a single commodity had an average output value volatility of 27 0 while producers of three or more commodities had a 12 7 volatility in this period average correlation was 8 and diversification was very effective in the 2007 12 period correlations averaged 26 and output volatilities for specialized and diversified commodities were 30 4 and 19 5 respectively thus reducing the benefit of diversification at a time of macroeconomic distress in 2013 16 output volatilities reverted to levels close to those in 1987 2006 as commodities decorrelated again our findings should be relevant to policy makers embarking in diversification efforts and in the analysis of macroeconomic risk of commodity producers

how do the stock prices of new energy and fossil fuel companies correlate evidence from china abstract this study documents the return and volatility spillover effect between the stock prices of chinese new energy and fossil fuel companies using the asymmetric bekk model based on daily samples taken from august 30 2006 to september 11 2012 the dynamics of new energy fossil fuel stock spillover are found to be significant and asymmetric compared with positive news negative news about new energy and fossil fuel stock returns leads to larger return changes in their counter assets news about both new energy and fossil fuel stock returns spills over into variances of their counter assets and the volatility spillovers depend complexly on the respective signs of the return shocks of each asset the empirical results demonstrate that new energy and fossil fuel stocks are generally viewed as competing assets that positive news about new energy stocks could affect the attractiveness of fossil fuel stocks and that new energy stock investment is more speculative and riskier than fossil fuel stock investment these results have potential implications for asset allocation financial risk management and energy policymaking

modeling oil price us stock nexus a varma bekk agarch approach abstract this study adds to the existing literature on oil price us stock nexus in three ways first it employs the varma agarch model developed by mcaleer et al 2009 within the context of bekk framework using west texas intermediate wti and brent as proxies for oil market and s p stocks as a proxy for us stock market secondly it modifies the model to include endogenously determined structural break using the general structure for analyzing breaks with unit roots in perron 2006 third it uses the adopted model to compute optimal portfolio weight and hedge ratios between oil price and us stocks using different sample data based on the break date on average our empirical evidence suggests a significant positive return spillover from us stock market to oil market and bi directional shock spillovers between the two markets in addition there is significant own asymmetric shock effect in both markets while volatility spillover from oil market to stock market became pronounced after the break which coincides with the period of global economic slowdown similarly the results of portfolio management differ across the sample data more importantly we find that ignoring structural break when it exists may exaggerate hedging effectiveness

trends and cycles in the net barter terms of trade a new approach this study has two objectives first it uses time series techniques including unit root tests to reexamine the classic prebisch singer hypothesis that the relative prices of primary commodities in terms of manufactured goods are characterized by secular deterioration second commodity price movements are decomposed into permanent and cyclical components using the beveridge and nelson 1981 technique the latter information is valuable when assessing the viability of commodity stabilization funds and formulating countercyclical macroeconomic policy responses to commodity booms and busts copyright 1989 by royal economic society

expectations of future income and real exchange rate movements abstract we show that changes in expectations of future income driven by exogenous factors such as the discovery of oil and an increase in global demand for natural resources can cause movements in the real exchange rate rer in excess of and sometimes even in the opposite direction to what one would expect given the changes in current income we provide both a theoretical model and empirical evidence of this in particular we show that the signing of numerous production sharing agreements psas between the government of azerbaijan and foreign oil companies in 1994 1998 fueled expectations of higher future incomes resulting in a considerable appreciation of the rer some of these psas subsequently failed or ran into difficulties which led to a downward revision of expected future income and a depreciation of the rer in 1999 2003 even though the current income started to rise due to an increase in the current oil revenue

unprecedented changes in the terms of trade abstract the development of asia exposed commodity exporting economies to unprecedented changes in their terms of trade using a small open economy model we estimate changes in the long run level and variance of australia s terms of trade and study the quantitative implications of these changes an innovation of our analysis is to account in estimation for structural changes in the terms of trade we find that long run commodity prices increased by 35 in mid 2003 and that the volatility of shocks to commodity prices doubled soon after the increase in the level of commodity prices is much smaller than single equation estimates suggest this is because our inferences rely on many observables that in general equilibrium also respond to shifts in the long run level of the terms of trade

mean reversion in long horizon real exchange rates evidence from latin america abstract this paper examines mean reversion in real effective exchange rates in six leading latin american economies during the xxth century using a new data set a unit root approach is complemented by an error correction model including key fundamentals such as terms of trade trade openness and relative productivities unit root testing shows a very slow process of reversion if any to a constant mean in the original series rejecting the strict ppp hypothesis however mean reversion is found after allowing for trends and structural breaks with a half life average of 1 years for the six countries we also found reversion to a conditional mean defined by the co integrating relationship with an average half life of 2 years our estimates although lower than the 3 5 year range that motivated the rogoff s puzzle still indicate the presence of important obstacles to the adjustment process that need further investigation

real exchange rate behavior the recent float from the perspective of the past two centuries using annual data spanning two centuries for dollar sterling and franc sterling real exchange rates we find strong evidence of mean reverting real exchange rate behavior using simple stationary autoregressive models estimated on prefloat data we easily outperform nonstationary real exchange rate models in dynamic forecasting exercises over the recent float such stationary univariate equations explain 60 80 percent of the in sample variation in real exchange rates although the degree of short run persistence may be high the econometric estimates imply a half life of shocks to the real exchange rate of about 6 years for dollar sterling and a little under 3 years for franc sterling

the effect of inflation targeting and financial openness on currency composition of sovereign international debt abstract this paper analyzes the joint effect of inflation targeting and capital account openness in promoting changes to the currency composition of sovereign international debt in developing countries first using difference in differences in combination with entropy balancing we offer empirical evidence that the adoption of inflation targeting together with high capital account openness can significantly reduce the reliance on foreign currency denominated sovereign international debt we find that financially integrated inflation targeting countries have 11 percentage points lower foreign currency shares in their sovereign debt compared to non targeting countries second we determine the threshold level of financial openness that countries need to attain before they see the full benefits of inflation targeting third the joint effect of inflation targeting and capital account openness significantly increases three years after the policy implementation our results are robust to alternative specifications which include instrumental variables to account for the endogeneity of the policy

crude oil prices and sectoral stock returns in jordan around the arab uprisings of 2010 abstract in this paper we test for mean and variance causality between world oil prices and sectoral equity returns in jordan before and after the arab uprisings that started in 2010 the testing methodology is based on the sample of cross correlation functions that are computed from the standardized residuals of a garch process our results show that the influence is not uniform across the equity sectors the oil return shocks significantly impact the financials and the services sectors while its effect is insignificant on the industrials sector this result is more pronounced in the period that follows the arab uprisings in terms of risk transfer we find that oil is a negligible risk factor however there is still a significant evidence of risk transmission to the industrials sector particularly during the arab uprisings period these results represent a unique information transmission mechanism that is useful for risk management and portfolio diversification

can exchange rates forecast commodity prices we show that commodity currency exchange rates have surprisingly robust power in predicting global commodity prices both in sample and out of sample and against a variety of alternative benchmarks this result is of particular interest to policy makers given the lack of deep forward markets in many individual commodities and broad aggregate commodity indices in particular we also explore the reverse relationship commodity prices forecasting exchange rates but find it to be notably less robust we offer a theoretical resolution based on the fact that exchange rates are strongly forward looking whereas commodity price fluctuations are typically more sensitive to short term demand imbalances

commodity price volatility with endogenous natural resources abstract natural resource reserves are exogenous in models of small commodity exporters changes in the stock of reserves play no role in the macroeconomy including in business cycle volatility trade dynamics or exchange rate volatility we consider richer supply dynamics and model exploration and depletion we show that an endogenous supply of reserves is important for capturing the stylised facts associated with commodity price shocks including a commodity currency the crowding out of non commodity activity dutch disease and a volatile business cycle we also consider how exploration and depletion affect the ranking of optimal monetary and taxation policies when natural resource reserves are held fixed monetary policy is an efficient tool for stabilising the effects of commodity price shocks however when exploration and depletion are accounted for using interest rates to stabilise the effects of commodity price changes becomes inefficient using taxes on the resource sector specifically an ad valorem royalty remains efficient

does the u s economic policy uncertainty connect financial markets evidence from oil and commodity currencies abstract we provide novel insight to the emerging literature on the role of u s monetary policy as a driver of a global financial cycle by examining the possible causal effect of u s economic policy uncertainty on the connectedness of crude oil and currency markets using a sample of commodity currencies from advanced and emerging nations a battery of linear and nonlinear granger based causality tests indicate the presence of a causal relationship between economic policy uncertainty and the connectedness of oil and currency markets particularly at low frequencies and more significantly after the outburst of the global financial crisis while crude oil generally serves as a net transmitter of shocks to currencies across all frequency bands the spillover effects from oil are largely concentrated towards the g10 currencies of australian and new zealand dollar that are often used as investment currencies in global carry trade strategies overall our findings suggest the presence of a significant pass through effect of economic policy uncertainty via oil prices spilling over to the currency market in line with the emerging evidence that the monetary policy by the u s fed serves as a major driver of a global financial cycle that describes patterns in global capital flows credit activity and asset prices across financial markets

is there co movement of agricultural commodities futures prices and crude oil even though significant attempts have appeared in literature the current perception of co movement of commodity prices appear inadequate and static in particular we focus on price movements between crude oil futures and a series of agricultural commodities and gold futures a comparative framework is applied to identify changes in relationships through time and various cointegration methodologies and causality tests are employed our results indicate that co movement is a dynamic concept and that some economic and policy development may change the relationship between commodities furthermore we show that biofuel policy buffers the co movement of crude oil and corn futures until the crude oil prices surpass a certain threshold

from the static to the dynamic some problems in the theory of taxation abstract this paper considers problems and issues that arise when we attempt to extend the static theory of taxation and production planning to a dynamic context and to combine that theory with theories of growth the reasons dynamic theory is less developed include problems with the analytical tractability of even those dynamic models which attempt to retain the basic structure of the static model furthermore difficult and interesting issues arise in a dynamic context which are either not present or are much less severe in the static theory special attention is paid to these new issues and the difficulties they pose

terms of trade and real exchange rates the canadian evidence abstract this paper presents empirical evidence linking the canada us real exchange rate with the terms of trade using recently developed econometric methods for nondashstationary data we find that the real exchange rate is cointegrated with terms of trade variables and that causality runs from the terms of trade to the exchange rate we then construct a simple exchange rate equation that satisfies several specification tests and performs better than a random walk in post sample forecasting experiments the results suggest that much of the variation in the real exchange rate is attributable to movements in the terms of trade and that the influence of monetary factors is secondary

the theory of reform and indian indirect taxes abstract given a set of value judgements an initial state and a model of the economy one can ask whether some feasible tax change would increase welfare we do this by defining the marginal cost in terms of welfare of raising an extra rupee from the i th good the inverse optimum problem is the calculation of non negative welfare weights on households which imply that the initial state is optimum if no such welfare weights exist then a pareto improvement is possible we illustrate the concepts and results using data from the indian economy for 1979 1980 directions of tax reform for a number of specific social welfare functions and for pareto improvements are presented

dynamic link between oil prices and exchange rates a non linear approach abstract we explore the non linear relationship between crude oil prices and exchange rates of major currencies from quantitative and structural perspectives by utilizing bivariate normal mixture model the correlation coefficients between oil prices and exchange rates demonstrate that their dependences typically start from 2004 then dynamically change over time then we investigate whether business cycle and oil price shocks as two possible exogenous factors affect the dependence structure of oil fx linkage we find significant structural heterogeneity during economic expansion while little evidence of heterogeneity in recession this finding provides alternative interpretations for the enhanced dependence between oil prices and exchange rates and generates implications of financialization in commodity market in terms of oil price shocks kilian 2009 the normal mixture model captures significant heterogeneity implying that unstable oil fx dependence structure is frequently associated with oil aggregate demand shocks and oil specific demand shocks with an emphasis on the dynamic weights of two underlying states we interestingly find that structural heterogeneities coincide with a variety of geopolitical and economic events the application of normal mixture not only provide us knowledge of non linear relationship between oil prices and exchange rates but also guidance for investors in risk management and portfolio diversification complementary to the traditional portfolio theory based on normal distribution

on the impact of volatility on the real exchange rate terms of trade nexus revisiting commodity currencies abstract the aim of this paper is to study the relationship between terms of trade and real exchange rates in commodity producing countries on both the short and the long run we investigate potential non linearity in the real exchange rate terms of trade nexus according to the level of volatility in commodity and financial markets to this end we consider a panel of 68 commodity exporters split in sub samples of advanced intermediate and low income countries we first show that there is a long run relationship between real exchange rates and terms of trade taking also into account productivity and net foreign assets then we run panel smooth transition regressions to estimate the adjustment process of the real effective exchange rate to its equilibrium value depending on different proxies of volatility our results show that only advanced oil exporters currencies are sensitive to changes in terms of trade in the short run especially when volatility is high on commodity markets

dutch disease and the oil boom and bust this paper examines the impact of the oil price boom in the 1970s and the subsequent bust on non oil economic activity in oil dependent countries during the boom manufacturing exports and output increased significantly relative to non oil countries these measures decreased gradually during the bust and subsequent period of low prices displaying a positive relationship with oil prices however exports of agricultural products sharply decreased during the boom imports of all types of goods displayed strong pro cyclicality with respect to oil prices the results suggest that increased local demand and investment spillovers from the windfall resulted in increased manufacturing activity

consumption and real exchange rates in dynamic economies with non traded goods abstract we examine the possibility that non traded goods may account for several striking features of international macroeconomic data large persistent deviations from purchasing power parity small correlations of aggregate consumption fluctuations across countries and substantial international real interest rate differentials a dynamic exchange economy is used to show that non traded goods in principle can account for each of these phenomena in the theory there is a close relation between fluctuations in consumption ratios and those in bilateral real exchange rates but we find little evidence for this relation in time series data for eight oecd countries

exchange rate economics is always and everywhere controversial abstractthis article reviews the major developments in the recent literature on exchange rate economics it is argued that the link between the exchange rate and economic fundamentals is breaking new ground evidence indicates that alternative analytical frameworks such as the new open economy macroeconomics and exchange rate arrangements such as the euro have their theoretical and analytical elegance but are proving empirically very difficult to implement the role of methodological advances and alternative fundamental instruments such as world commodity prices is also highlighted

commodity currencies and the real exchange rate abstract 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

on the exposure of the bric countries to global economic shocks the financial crisis led to a deep recession in many industrial countries while large emerging countries recovered relatively quickly from the financial crisis their performance deteriorated in the last years despite the modest recovery in advanced economies the higher divergence of business cycles is closely linked to the chinese transformation during the crisis the chinese fiscal stimulus prevented a decline in gdp growth not only in that country but also in resource rich economies the chinese shift to consumption driven growth led to a decline in commodity demand and the environment became more challenging for many emerging markets this view is supported by bayesian vars specified for the bric brazil russia india and china countries the results reveal a strong impact of international variables on gdp growth in contrast to the other countries china plays a crucial role in determining global trade and oil prices hence the change in the chinese growth strategy puts additional reform pressure on countries with abundant natural resources

in defense of the finance constraint simple models of monetary trade commonly impose a finance constraint on expenditure it is often suggested that this finance constraint is artificial a result of money s being the only asset of the absence of credit and of the special time structure of such models this paper shows that the finance constraint on aggregate expenditure remains in force when other assets and credit are introduced and when the time structure is generalized to allow overlapping income periods of differing lengths most of the objections to the finance constraint are shown to involve fallacies of composition there are economists to whom a constraint of the form pc m in units t must appear unthinkable r e lucas jr 1980

cointegration analysis with structural breaks and deterministic trends an application to the canadian dollar this article applies recent developments in cointegration analysis with structural breaks and deterministic trends to analyse the relationship between the real canada us exchange rate and commodity prices previous empirical studies disagree on whether these variables are cointegrated the root of disagreement could be in the handling of deterministic trends and potential structural breaks i find that even after controlling for these matters the question of whether the real exchange rate and commodity prices are cointegrated for canada remains unresolved

boom goes the price giant resource discoveries and real exchange rate appreciation we estimate the effect of giant oil and gas discoveries on bilateral real exchange rates the size and plausibly exogenous timing of such discoveries make them ideal for identifying the effects of an anticipated resource boom on prices we find that a giant discovery with the value of a country s gdp increases the real exchange rate by 14 within 10 years following the discovery the appreciation is nearly exclusively driven by an appreciation of the prices of non tradable goods we show that these empirical results are qualitatively and quantitatively in line with a calibrated model with forward looking behaviour and dutch disease dynamics

volatility spillovers for energy prices a diagonal bekk approach abstract we examine the relationship between return and volatility as well as the covolatility spillover for energy foreign currency and stock markets using the diagonal bekk model using daily crude oil natural gas and the coal prices as proxies for energy prices the s p500 index as a proxy for the u s stock market and the eur usd exchange rate as a proxy for the exchange rate we find robust evidence for the volatility spillover effects among the three markets also in the 16 out of 20 pairwise relationships in the five markets there are significant negative covolatility spillover effects in the four pairs involving coal there are positive and significant covolatility spillover effects we conclude that the energy markets and the stock market have stronger covolatility spillovers than others

does exchange rate management affect the causality between exchange rates and oil prices evidence from oil exporting countries abstract the bi directional causality between exchange rates and oil prices of oil exporting countries has been widely investigated since the oil crisis in the 1970s the classical theoretical framework assumes that countries adopt free floating exchange rate arrangements and empirical studies seldom consider exchange rate restrictions when investigating oil exporters that always manage exchange rates to address these limitations this study designs a comparative analysis for three groups of oil exporting economies that adopt different foreign exchange rate policies the analysis aims to examine whether and how intervention behavior may distort the causal relationship between exchange rates and oil prices we first show the non linear causality relationships for countries with free floating exchange rate arrangements in both long and short terms then we establish how the managed floating policy can eliminate the impact of oil prices on exchange rates in bull markets but fail to prevent exchange rate depreciation in bear markets in bear markets a negative non linear feedback from exchange rates to oil prices prevails in these countries however contrary to common wisdom the strict soft pegged exchange rate arrangement cannot remove all the linkages between exchange rates and oil prices a small but significant response of exchange rates toward oil prices is detected for kuwait and saudi arabia a similar effect for kazakhstan is only found in bear markets in addition this study re investigates the relationship between exchange rate and the domestic currency price of oil the conclusions are similar except that the relationship is weakened in free floating countries but strengthened in managed floating countries during the bear market periods

external and budget deficits in some developing countries abstract this paper documents and explains the positive comovement between the external and budget deficits of developing countries for which post 1960 time series data are available first the estimates indicate that the empirical covariance between these deficits is always positive and is statistically significant for many cases second the empirical covariance is close to that predicted from a tractable small open economy overlapping generation model with heterogeneous goods capturing the joint behavior of the external and budget deficits also the predicted covariance is induced by shocks which are closely related to internal conditions such as domestic resources and fiscal policies and to a much lesser extent to external conditions such as the world interest rate real exchange rate and terms of trade

risk appetite and oil prices abstract we demonstrate that oil prices and their volatility are no longer determined solely by real economic shocks to supply of and demand for oil but are also driven by shocks originating in the economic uncertainty and risk appetite of investors that prevail in the equity market the contribution of the latter factor has become particularly remarkable since the mid 2000s to establish these results we dismantle the squared vix index determined in the s p 500 options market into the conditional variance in stock returns to proxy for economic uncertainty and the equity variance risk premium to proxy for risk appetite using threshold garch structural vector auto regression and causality models we provide evidence about the link between risk appetite oil price returns and volatility furthermore investors appetite for risk drives changes in the ovx which measures perceptions about future oil volatility but not vice versa our results provide a better understanding of the relationship between oil the vix and its two proposed components in particular we show that changes in the risk appetite of investors are an important determinant not only for the price of equities but also for that of the most important energy resource oil

what makes a currency procyclical an empirical investigation this paper looks at the correlation between the cyclical components of gross domestic product and the exchange rate and classifies countries currencies as procyclical if they appreciate in good times countercyclical if they appreciate in bad times and acyclical otherwise with this classification the paper shows that i the countries that are commodity exporters and experience procyclical capital flows tend to have procyclical currencies ii countries with procyclical currencies tend to restrict their capital accounts perhaps as an attempt to reduce the degree of procyclicality iii countries with procyclical currencies pursue procyclical monetary policy iv however in the last decade there is a disconnect between the cyclicality of currency and monetary policy and v the disconnect may reflect a decline in the fear of floating which can be partially attributed to an improvement in countries net foreign asset positions

commodity prices interest rates and the dollar this paper sheds light on recent fluctuations in commodity prices we investigate whether a decline in real interest rates and the us dollar contributes to higher commodity prices and whether commodity prices display overshooting behavior in response to changes in real interest rates we analyze the behavior of real prices of crude oil food metals and industrial raw materials the analysis is based on structural var models estimated on quarterly data over the period 1990q1 2007q4 our results suggest that commodity prices increase significantly in response to reductions in real interest rates moreover oil prices and prices of industrial raw materials tend to display overshooting behavior in response to such interest rate changes the evidence also suggests that a weaker dollar leads to higher commodity prices shocks to interest rates and the dollar are found to account for substantial shares of fluctuations in commodity prices

dutch disease and the mitigation effect of migration evidence from canadian provinces this article evaluates whether immigration can mitigate the dutch disease effects associated with booms in natural resource sectors we derive predicted changes in the size of the non tradable sector from a small general equilibrium model a la obstfeld rogoff using data for canadian provinces we find evidence that aggregate immigration mitigates the increase in the size of the non tradable sector in booming regions the mitigation effect is due mostly to interprovincial migration and temporary foreign workers there is no evidence of such an effect for permanent international immigration interprovincial migration also results in a spreading effect of dutch disease from booming to non booming provinces

real exchange rate volatility terms of trade shocks and financial integration in primary commodity exporting economies using a panel of 53 primary commodity exporting countries we show that greater international financial integration reduces the impact of terms of trade shocks on real exchange rate volatility this reduction is larger when we define financial integration as foreign direct investment

market power inflation targeting and commodity currencies abstract the commodity currency literature highlights the robust exchange rate response to fluctuations in global commodity prices that occurs for major commodity exporters the magnitude of the response however varies widely across countries and over time horizons this paper examines the real exchange rates of 51 commodity exporters over the period from 1980 to 2010 and finds that in the long run a higher degree of market power in the world commodity trade can reduce the exchange rate response while in the short run an inflation targeting regime can amplify it these differential impacts across countries and horizons are of particular relevance for monetary policy making and for trade strategy in commodity abundant economies

global economic activity crude oil price and production stock market behaviour and the nigeria us exchange rate abstract this paper investigates the dynamic relationship among oil price nigeria us exchange rate stock market activity kilian s global economic activity index and global oil production we develop a robust stable single equation error correction model where the exchange rate solely bears the burden of short run adjustments with causal influences from the rest of the variables included in the model we find a role for asymmetry in the long run confirming the presence of equilibrium path adjustment asymmetry and suggesting that the positive and negative variations must be accounted for in designing the policymaking process to enforce stable exchange rate movement by comparing the linear and nonlinear models we find that the two models are complementary and that each is horizon bound in its forecasting ability

primary commodity prices manufactured goods prices and the terms of trade of developing countries what the long run shows the authors revisit in this article the empirical foundation of the alleged secular decline in the prices of primary commodities relative to those of manufactures they use a newly constructed index of commodity prices and two modified indexes of manufactured good prices and find that from 1900 to 1986 the relative prices of all primary commodities fell on trend by 0 5 percent a year and those of nonfuel primary commodities by 0 6 percent a year they thus confirm the sign but not the magnitude of the trend implicit in the work of prebisch but even the more limited secular decline shown by their relative price indexes may be magnified by an incomplete account of quality improvements in manufactures they then show that the evolution of terms of trade of nonfuel primary commodities is not the same as that of the net barter terms of trade of non oil exporting developing countries finally they find that despite the decline that has probably occurred during the current century in the terms of trade of nonfuel primary commodities the purchasing power of total exports of these products has increased considerably similarly the fall that may have occurred after world war ii in the net barter terms of trade of developing countries seems to have been more than compensated for by the steady improvement in their income terms of trade

was this time different fiscal policy in commodity republics abstract we revisit the issue of fiscal procyclicality in commodity rich nations commodity republics in the nomenclature of this paper since commodity prices are plausibly a main driver of fiscal policy outcomes in these countries we focus on the behavior of fiscal variables across the commodity cycle in contrast to behavior across the output cycle which has been the main focus of earlier research on fiscal procyclicality we present evidence of reduced fiscal policy procyclicality in a number of countries our empirical results suggest that improvements in institutional quality have led to a more countercyclical fiscal policy stance in a number of countries the presence of fiscal rules also seems to have made a difference countries that use them displayed a larger shift toward fiscal counter cyclicality between the two episodes

financial liberalization structural change and real exchange rate appreciations abstract the last twenty years have witnessed periods of sustained appreciations of the real exchange rate in emerging economies the case of mexico between 1988 and 2002 is representative of several episodes in latin america and central and eastern europe in which countries opening to capital flows experienced large appreciations accompanied by a significant reallocation of workers towards the non tradable sector we account for these facts using a two sector dynamic general equilibrium model of a small open economy with frictions to labor reallocation and two driving forces i a decline in the cost of borrowing in foreign markets and ii differential productivity growth across sectors these two mechanisms account together for 60 of the decline in the domestic relative price of tradables in mexico and for a large fraction of the observed reallocation of labor across sectors the decline in the interest rate faced by mexico in international markets is quantitatively the most important channel our results are robust to the inclusion of terms of trade into the model

real exchanges rates commodity prices and structural factors in developing countries this paper provides new empirical evidence about the relationship that may exist between real exchange rates and commodity prices in developing countries that are specialized in the export of a main primary commodity it investigates how structural factors like the exchange rate regime the degree of financial and trade openness the degree of export concentration and the type of the commodity exports affect the strength of the commodity price real exchange rate dependence

asset pricing implications of a new keynesian model to match the stylised facts of goods and labour markets the canonical new keynesian model augments the optimising neoclassical growth model with nominal and real rigidities we ask what the implications of this type of model are for asset prices using a second order numerical solution to the model we examine bond and equity returns the equity risk premium and the behaviour of the real and nominal term structure we catalogue the factors that are most important for determining the size of risk premia and the slope and level of the yield curve in a world of technology shocks only increasing the degree of real rigidities raises risk premia and increasing nominal rigidities reduces risk premia in a world of monetary policy shocks only both real and nominal rigidities raise risk premia the results indicate that the implications of the new keynesian model for average asset returns depend critically on the

obstacles to disinflation what is the role of fiscal expectations persistently high expected inflation often makes it difficult for policy makers to recover from inflationary episodes without substantial output losses using survey data from eleven disinflation episodes we can assess whether the more or less sluggish decline of inflation rates towards lower target levels is related to backward looking pricing behavior or to imperfect credibility of the stabilization efforts we find that expectations of future inflation play a much more important role than past inflation in shaping the inflation process second we find that an improvement in various measures of fiscal balances significantly reduces inflation expectations this evidence suggests that when attempting to stabilize inflation priority should be given to building fiscal credibility oya celasun r gaston gelos and alessandro prati

does euro or dollar pegging impact the real exchange rate the case of oil and commodity currencies the aim of this paper is to investigate the equilibrium exchange rates for commodity and oil currencies as well as the discrepancies of their observed exchange rates to these equilibriums to this end first we estimate a long term relationship between the real effective exchange rate and economic fundamentals including the commodity terms of trade the estimation relies on panel cointegration techniques and covers annual data from 1980 to 2007 our results show that real exchange rates co move with commodity prices in the long run and respond to oil price somewhat less than to commodity prices second we assess the degree of misalignment of these currencies as the gap between their observed exchange rate and the estimated equilibrium exchange rate we show that these misalignments are not significantly related to the exchange rate regimes adopted by the countries either pegged or floating however for pegged currencies the size of misalignments significantly depends on the anchor currency either the euro or the dollar a comparison of misalignments of pegged commodity and oil currencies across different periods confirms these results during periods of dollar euro overvaluation currencies pegged to the dollar euro tend to be overvalued the reverse being true when the dollar euro is undervalued consequently pegged currencies are often driven away from their equilibria by wild fluctuations in the key currencies on which they are anchored

volatility risk premia and future commodity returns abstract this paper extends the empirical literature on volatility risk premium vrp and future returns by analyzing the predictive ability of commodity currency vrp and commodity vrp the empirical evidence throughout this paper provides support for a positive relationship of commodity currencies vrp and future commodity returns but only for the period after the 2008 global financial crisis this predictability survives the inclusion of control variables like equity vrp and past currency returns furthermore gold vrp also has the ability to predict future commodity returns however this predictability is restricted to precious metals when control variables are considered

capital controls and the real exchange rate do controls promote disequilibria abstract the consensus view is that capital controls can effectively lengthen the maturity composition of capital inflows and increase the independence of monetary policy but are not generally effective at reducing net inflows and influencing the real exchange rate this paper studies the adjustment dynamics of the real exchange rate towards its long run equilibrium and presents empirical evidence that capital controls increase the persistence of misalignments allowing the speed of adjustment to vary according to the intensity of restrictions on capital flows it is shown that the real exchange rate converges to its long run level at significantly slower rates in countries with capital controls this result is stronger when the exchange rate is undervalued and is independent of confounding factors such as the exchange rate regime and other forms of heterogeneity affecting the speed of adjustment i also find evidence that controls on capital inflows have greater effects than controls on outflows in addition while the combination of capital controls with a fixed or managed exchange rate regime significantly increases the persistence of misalignments controls appear to loose traction under more flexible exchange rate arrangements

crude oil shocks and stock markets a panel threshold cointegration approach abstract this paper proposes a panel threshold cointegration approach to investigate the relationship between crude oil shocks and stock markets for the oecd and non oecd panel from january 1995 to december 2009 nonlinear cointegration is confirmed for the oil stock nexus in the panel because threshold cointegration is found the threshold vector error correction models can be run to investigate the presence of asymmetric dynamic adjustment the granger causality tests demonstrate the existence of bidirectional long run granger causality between crude oil shocks and stock markets for these oecd and non oecd countries however the short run granger causality between them is bidirectional under positive changes in the deviation and unidirectional under negative ones moreover the speed of adjustment toward equilibrium is faster under negative changes in the deviation than that under positive ones in these oecd and non oecd countries

real exchanges rates in commodity producing countries a reappraisal commodity price booms as those recorded in the last decade may have a significant economic impact in small commodity exporting developing countries whether the impact on output is positive or negative is still unclear it depends on various factors notably on the impact that commodity prices can have on the real exchange rate of the commodity exporting countries two recent papers show that the real exchange rate appreciates when commodity prices increase our analysis produces new estimates of this relationship by focusing on a large sample of developing countries which are specialized in the export of one leading commodity by using non stationary panel techniques robust to cross sectional dependence we find that the price of the dominant commodity has a significant long run impact on the real exchange rate when the exports of the leading commodity have a share of at least 20 percent in the country s total exports of merchandises our results also show that the larger this share the larger the size of the impact

retail sales of durable goods inventories and imports after large devaluations abstract this paper presents a general equilibrium model of a small open economy with monopolistically competitive retailers inventories and durable goods following large devaluations this model generates a collapse of imports a fall of retail sales and inventories and a gradual increase in retail prices besides the model provides an explanation for a short lived spike in retail sales of durable goods observed during the recent devaluation episode in russia in december of 2014

tariff design and reform in a revenue constrained economy theory and an illustration from india abstract this paper develops the theory of design and reform of protective tariffs in a revenue constrained small open economy characterized by learning by doing it shows that revenue raising requires wedges between consumer prices and shadow prices while protection when typically not achievable via subsidies directly targeted towards factor market distortions requires wedges between producer prices and shadow prices illustrative calculations in a modestly disaggregated general equilibrium model of india support the view that uniformity in protective tariffs is likely to be a reasonably good policy in situations where the government intends no discrimination within the sectors already identified for special treatment

emerging floaters pass throughs and some new commodity currencies in spite of early skepticism on the merits of floating exchange rate regimes in emerging markets 8 of the 25 largest countries in this group have now had a floating exchange rate regime for more than a decade using parsimonious var specifications covering the period of floating exchange rates this study computes the dynamics of exchange rate pass throughs to consumer price indices we find that pass throughs have typically been moderate even though emerging floaters have seen considerable nominal and real exchange rate volatilities previous studies that set out to estimate exchange rate pass throughs ignored changes in policy regimes making them vulnerable to the lucas critique we find that within the group of emerging floaters estimated pass throughs are higher for countries with greater nominal exchange rate volatilities and that trade more homogeneous goods these findings are consistent with the pass through model of floden and wilander 2006 and earlier findings by campa and goldberg 2005 respectively furthermore we find that the indonesian rupiah the thai baht and possibly the mexican peso are commodity currencies in the sense that their real exchange rates are cointegrated with international commodity prices

a dynamic specific factors model with money when the capital stock is endogenously chosen by optimizing households the predictions of the static specific factors model are modified an increase in tariffs unambiguously increases real wages whereas an expansion of the labor force does not reduce wages capital and land are not only factors of production but also assets and their shares in the household s portfolio are determined by features of the supply side time preference and inflation an increase in inflation reduces the capital stock but its impact on the price of land is ambiguous because of opposite movements in the inflation tax and in land rents

dynamic spillover between commodities and commodity currencies during united states q e abstract this paper comprehensively discusses the dynamic relationship between commodities and commodity currencies particularly during the u s quantitative easing qes by integrating the generalized spillover index into a fractionally integrated var fivar model our empirical analyses reach the following conclusions first the static return and volatility spillovers analyses show that the food is the only net receiver among all the commodity price indices second the dynamic total return and volatility spillover accelerated growth in term of the index by roughly between 15 and 25 for four regional groups during the initiation of the qe1 and subsequently remained across the first two rounds of the u s qe nevertheless both the total return and volatility spillover declined in the midst of the qe3 as the u s federal reserve signaled the qe tapering due to the anticipated u s economic recovery third the energy and metals components were the largest net transmitters of return and volatility spillovers during the u s qes a possible interpretation is that demand for energy and metals increase associated with an increase in economic activity that is triggered by the u s qes last almost all the sample commodity currencies acted as net receivers of return and volatility spillovers during the u s qes supporting the pass through of commodities to commodity currencies

oil prices and stock market in china a sector analysis using panel cointegration with multiple breaks this paper investigates the relationship between oil prices and the chinese stock market at the sector level in a panel cointegration and granger causality framework the major sectors in china are studied using data collected from july 2001 to december 2010 when the effects of cross sectional dependence and multiple structural breaks are taken into account the panel cointegration relationship between oil prices and stock prices is confirmed at the disaggregated sector level the results indicate that there is some evidence of structural breaks in the interaction between oil prices and chinese sectoral stocks the long run estimates suggest that the real oil price has a positive effect on sectoral stocks in the long run the granger causality tests demonstrate a unidirectional short run granger causality relationship running from oil prices and sectoral stocks to the interest rate for 2001 07 2005 10 there is also a unidirectional long run granger causality running from sectoral stocks to the interest rate for 2001 07 2005 10 and 2005 12 2007 06 however the long run granger causality is bidirectional between oil prices the interest rate and sectoral stocks for 2007 08 2008 11 and 2009 01 2010 12 meanwhile the short run granger causality is also bidirectional between the interest rate and oil prices

the imperfections of a credit market in agriculture in the article the relations of the credit market with the agricultural sector were evaluated the significance of the imperfections in the allocation of resources with help of the credit market was presented the attention was paid to both the specificity of the very agriculture and the external conditions which were created as a result of the process of globalization the effects of the impact of the selected macroeconomic indicators on the adjustments within the interest rate calculated with use of the changes of the prices of agricultural products were examined ten highly developed countries were analyzed for regard of the similar conditions of functioning the research period referred to 1990 2010 the conducted deliberations allowed to distinguish a group of factors influencing the terms of creating the costs of obtaining the credit money the character of the existing correlations was analyzed the different meaning of particular relations was proved the presented results raise the significance of retransfers dedicated to agriculture with help of the state

commodity currencies and the real exchange rate abstract this paper shows that a change in the terms of trade of a commodity exporting country could cause the relative price of nontraded goods to rise or fall depending on the strength of income and substitution effects

oil currencies in the face of oil shocks what can be learned from time varying specifications abstractwhile the oil currency property is clearly established from a theoretical viewpoint its existence is less clear cut in the empirical literature we investigate the reasons for this apparent puzzle by studying the time varying nature of the relationship between real effective exchange rates of five oil exporters and the real price of oil in the aftermath of the oil price shocks of the last two decades accordingly we rely on a time varying parameter var specification which allows the responses of real exchange rates to different oil price shocks to evolve over time we find that the reason of the mixed results obtained in the empirical literature is that oil currencies follow different hybrid models in the sense that oil countries real exchange rates may be driven by one or several sources of oil price shocks that furthermore can vary over time in addition to structural changes affecting oil countries structural changes arising from the oil market itself through the various time varying sour