Commodity Prices and the Macroeconomy: An Extended Dependent Economy Approach
MetadataShow full item record
This paper proposes a straightforward model for analysing the impact of export commodity price fluctuations on small open macroeconomies with particular reference to Australia and New Zealand, major commodity exporters in the Asian region. It extends the dependent economy approach, first by re-specifying goods and services production as either exportable, importable or non-tradable, and second by adding a monetary sector to highlight key linkages between commodity prices, the exchange rate, price level, national output and trade account. The framework sheds new light on the phenomenon of 'commodity currencies', how exchange rate movements shield national output from terms of trade shocks, the importance of economic openness in this process, and the significance for monetary and exchange rate policy of short term, versus sustained, commodity price movements.
Journal of Asian Economics
© 2013 Elsevier Inc. This is the author-manuscript version of this paper. Reproduced in accordance with the copyright policy of the publisher. Please refer to the journal's website for access to the definitive, published version.