The Volatility of the Relative Price of Commodities in Terms of Manufactures Across Exchange Regimes: A Theoretical Model

21 Pages Posted: 15 Feb 2006

See all articles by Hong Liang

Hong Liang

International Monetary Fund (IMF)

Date Written: November 1998

Abstract

This paper investigates the relationship between the nominal exchange rate regime and the volatility of relative commodity prices. The analysis shows that the relationship depends upon both the market structure and the economic agent`s perception about future exchange rate movements. When the markets for manufactured goods are less competitive than the markets for primary commodities, the volatility of relative commodity prices rises when exchange rate uncertainty increases. If demand for manufactured goods is intertemporally dependent, even a small increase in exchange rate uncertainty can result in potentially large costs in terms of increased relative commodity price instability.

Keywords: Relative commodity price, exchange regimes, exchange rate pass-through

JEL Classification: F41, L16, F33

Suggested Citation

Liang, Hong, The Volatility of the Relative Price of Commodities in Terms of Manufactures Across Exchange Regimes: A Theoretical Model (November 1998). IMF Working Paper No. 98/163, Available at SSRN: https://ssrn.com/abstract=883044

Hong Liang (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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