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- Title
Commodity Currencies: Why Are Exchange Rate Futures Biased if Commodity Futures Are Not?
- Authors
KEARNS, JONATHAN
- Abstract
This paper adds to the well-documented puzzle of the forward bias of exchange rates. While the exchange rate of a small commodity-exporting economy, such as Australia, can be closely tied to commodity prices, this paper demonstrates empirically that a portfolio of commodity futures exhibits little, if any, bias. A microfounded small open economy model is developed in which the exchange rate depends on export commodity prices. This is used to demonstrate how systematic expectation errors about the monetary process could cause the bias in exchange rate forwards when there is an absence of bias in commodity futures.
- Subjects
AUSTRALIA; COMMODITY futures; FOREIGN exchange rates; COMMODITY exchanges; MONETARY policy; COMMODITIES regulations; INTERNATIONAL trade; ECONOMIC indicators; ECONOMIC policy
- Publication
Economic Record, 2007, Vol 83, Issue 260, p60
- ISSN
0013-0249
- Publication type
Article
- DOI
10.1111/j.1475-4932.2007.00376.x