Will the Emergence of the Euro Affect World Commodity Prices?

An Application to a Set of Hypothetical Banks Operation in South Africa

This study provides evidence that episodes of internal stability of exchange rates among the 11 Euro countries during 1957-98 were associated with periods of lower real commodity price volatility. These stabilizing effects are statistically significant for fertilizer, metals, petroleum, and cereals. A reasonable inference, therefore, is that the establishment of the Euro on January 1, 1999, should be expected to contribute to reduced volatility of world commodity prices, other things equal, although the impacts are likely to be modest.
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Volume/Issue: Volume 2000 Issue 208
Publication date: December 2000
ISBN: 9781451874693
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Business and Economics , Economics- Macroeconomics , WP , commodity price , SDR exchange rate , U , S , dollar , volatility measure , Commodity prices , volatility , exchange rate regimes , Euro , commodity index , volatility variable , commodity volatility measure , SDR rate , exchange rate volatility , SDR volatility , commodity flow , commodity volatility variable , price series , price data , Exchange rates , Commodity price fluctuations , Agricultural commodities , Global

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Summary

This study provides evidence that episodes of internal stability of exchange rates among the 11 Euro countries during 1957-98 were associated with periods of lower real commodity price volatility. These stabilizing effects are statistically significant for fertilizer, metals, petroleum, and cereals. A reasonable inference, therefore, is that the establishment of the Euro on January 1, 1999, should be expected to contribute to reduced volatility of world commodity prices, other things equal, although the impacts are likely to be modest.

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