Agricultural Commodity Prices and Exchange Rates under Structural Change
By: Hatzenbuehler, Patrick L.; Abbott, Philip C.; Foster, Kenneth A.
Hatzenbuehler, Patrick L.; Abbott, Philip C.; Foster, Kenneth A., Agricultural Commodity Prices and Exchange Rates under Structural Change, Journal of Agricultural and Resource Economics, Volume 41, Issue 2, May 2016, Pages 204-224
That exchange rates strongly influence agricultural commodity prices is a widely held belief. Observed divergences in price and exchange rate correspondence over time, however, have occasionally brought this conventional wisdom into doubt. We empirically test and find evidence to support hypotheses that key supply-use factors, such as low stocks and policy shifts, intermittently cause greater responsiveness of agricultural commodity prices to exchange rate changes because they give rise to more inelastic market demand. After accounting for these longrun effects, we also find that short-run price responsiveness to exchange rate changes is sometimes greater due to overshooting factors.