Working Paper: NBER ID: w1741
Authors: Sebastian Edwards
Abstract: This paper analyzes the relation between exogenous changes in commodity export prices and the real exchange rate in a monetary economy. The traditional Dutch?Disease case is extended, and the monetary consequences of an export boom are explored. It is shown that commodity export booms can generate, in the short run, either an excess demand or an excess supply for money. In a monetary setting the short-run behavior of the real exchange rate can differ significantly from the more traditional Dutch-Disease case without money. The model is tested using data for Colombia.
Keywords: Commodity Export; Real Exchange Rate; Inflation; Money Creation
JEL Codes: F31; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increase in coffee prices (F69) | Excess supply of money (E51) |
| Excess supply of money (E51) | Inflation (E31) |
| Inflation (E31) | Real exchange rate appreciates (F31) |
| Increase in coffee prices (F69) | Inflation (E31) |
| Inflation (E31) | Real exchange rate appreciates more than equilibrium (F31) |
| Increase in coffee prices (F69) | Real exchange rate appreciates (F31) |
| Nominal exchange rate policy adjusted in response to coffee price fluctuations (F31) | Real exchange rate (F31) |