DP90 Primary Commodity Prices, the Business Cycle and the Real Exchange Rate of the Dollar
| Author(s): | Sweder van Wijnbergen |
| Publication Date: | December 1985 |
| Keyword(s): | Cyclical Movements, Dollar Appreciation, Primary Producers, Real Commodity Prices, Secular Movements, Terms of Trade |
| JEL(s): | 131, 411 |
| Programme Areas: | International Trade and Regional Economics |
| Link to this Page: | cepr.org/active/publications/discussion_papers/dp.php?dpno=90 |
An empirical stylized fact is that primary exporters' terms of trade worsen when the dollar appreciates and improve when the dollar depreciates. In our theoretical analysis, we demonstrate that an appreciation of the dollar will worsen a primary exporter's terms of trade, the smaller the United States share in the world market for the primary commodity, the lower the United States demand elasticity for that good, and the larger the United States share in the exporter's imports. We present empirical findings that support the theoretical analysis. We also find strong evidence of the cyclical sensitivity and the secular decline of real commodity prices.