; ; ; "ActiveFedora::Aggregation::ListSource" . a , ; "Real Exchange Rates and Primary Commodity Prices"; ; "batchuser@example.com"; "Ayres, João", "Hevia, Constantino", "Nicolini, Juan Pablo"; "Federal Reserve Bank of Minneapolis"; "Primary commodity prices", "Real exchange rate disconnect puzzle"; "F31 - Foreign Exchange", "F41 - Open Economy Macroeconomics"; "In this paper, we show that there is substantial comovement between prices of primary commodities such as oil, aluminum, maize, or copper and real exchange rates between developed economies such as Germany, Japan, and the United Kingdom against the US dollar. We therefore explicitly consider the production of commodities in a two-country model of trade with productivity shocks and shocks to the supplies of commodities. We calibrate the model so as to reproduce the volatility and persistence of primary commodity prices and show that it delivers equilibrium real exchange rates that are as volatile and persistent as in the data. The model rationalizes an empirical strategy to identify the fraction of the variance of real exchange rates that can be accounted for by the underlying shocks, even if those are not observable. We use this strategy to argue that shocks that move primary commodity prices account for a large fraction of the volatility of real exchange rates in the data. Our analysis implies that existing models used to analyze real exchange rates between large economies that mostly focus on trade between differentiated final goods could benefit, in terms of matching the behavior of real exchange rates, by also considering trade in primary commodities."^^; "2019-05-09"; "2019-05-17T13:28:33.656927095+00:00"^^; "https://doi.org/10.21034/sr.584"; ; "https://creativecommons.org/licenses/by-nc/4.0/"; "2020-09-29T21:30:53.719154482+00:00"^^; "https://creativecommons.org/licenses/by-nc/4.0/"; "Research Paper"; "340", "44", "562"; "Staff report (Federal Reserve Bank of Minneapolis. Research Department)"; "584"; "Real exchange rate disconnect puzzle", "Primary commodity prices"; ; ; ; ; "Federal Reserve Bank of Minneapolis. Research Department"; """Published in _Journal of International Economics_ (January 2020, article 103261), https://doi.org/10.1016/j.jinteco.2019.103261. An earlier version of this Staff Report circulated as [Working Paper 743](https://doi.org/10.21034/wp.743)."""^^; ; "Publication" . ; .