Title: Oil volatility pass-through and and real exchange rate misalignment in commodity exporting countries
Authors: Nicola Rubino - University of Barcelona (Spain) [presenting]
Abstract: We investigate the short and long run relationship between leading commodity prices and real effective exchange rates in a group of thirty countries over the period 1980-2015, paying attention to non-linearities in three aspects. First, we tested for unit roots using tests that account for the presence of structural breaks, which do not consider the possibility of a structural break under the alternative hypothesis, and other previously proposed tests, which unambiguously imply trend stationarity. We thus proceeded to look for a possible co-integrating relationship through the C/T test, complemented by other previous test. Second, cointegrating relationships were estimated through DOLS, in order to calculate a Real Effective Exchange Rate misalignment measure. Third, we fitted the measure into a smooth transition regression model to evaluate the impact of oil price variations on the relationship between REER and leading commodity prices. Our results show that a behavioral co-integrating relationship between REER and leading commodity prices is indeed present in a fraction of the countries considered. After testing for non-linearity, we show that the existence of short run adjustment depends on the extent of the volatility of the oil prices in a fraction of countries, while in the residual ones mean reversion remains consistent across regimes or is totally absent.