The role of commodity terms of trade in the determination of the real exchange rates of the Mediterranean countries

Reference:

Camarero, M., Cuestas, J. C. and Ordóñez, J., 2008. The role of commodity terms of trade in the determination of the real exchange rates of the Mediterranean countries. The Developing Economies, 46 (2), pp. 188-205.

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Official URL:

http://dx.doi.org/10.1111/j.1746-1049.2008.00062.x

Abstract

The aim of this paper is to investigate whether there exists a long-run relationship between the real exchange rate and the commodity terms of trade in the so-called Mediterranean or MENA countries. These economies are good candidates for this type of formulation, as are commodity exporting countries. Using cointegration techniques, we find long-run relationships linking the real exchange rate and a commodity-based measure of the terms of trade. Therefore, commodity terms of trade are a potential explanation for the apparent nonstationarity of MENA countries’ real exchange rates previously found in the empirical literature.

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