Commodity currencies and currency commodities

Vol: 
19/2006
Author name: 
Clements KW
Fry R
Year: 
2006
Month: 
July
Abstract: 

There is a large literature on the influence of commodity prices on the currencies of countries with a large commodity-based export sector such as Australia, New Zealand and Canada (“commodity currencies”). There is also the idea that because of pricing power, the value of currencies of certain commodity-producing countries affects commodity prices, such as metals, energy, and agricultural-based products (“currency commodities”). This paper merges these two strands of the literature to analyse the simultaneous workings of commodity and currency markets. We implement the approach by using the Kalman filter to jointly estimate the determinants of the prices of these currencies and commodities. Included in the specification is an allowance for spillovers between the two asset types. The methodology is able to determine the extent that currencies are indeed driven by commodities, or that commodities are driven by currencies, over the period 1975 to 2005.

Publication file: 

Updated:  26 April 2024/Responsible Officer:  Crawford Engagement/Page Contact:  CAMA admin