Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/149299 
Year of Publication: 
2016
Series/Report no.: 
CESifo Working Paper No. 6212
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We develop a simple model that highlights the costs and benefits of fixed exchange rates as they relate to trade, and show that negative export-price shocks reduce fiscal revenue and increase the likelihood of an expected currency devaluation. Using a new high-frequency data set on commodity-price movements from the classical gold standard era, we then show that the model’s main prediction holds even for the canonical example of hard pegs. We identify a negative causal relationship between export-price shocks and currency-risk premia in emerging market economies, indicating that negative export-price shocks increased the probability that countries abandoned their pegs.
Subjects: 
currency risk
commodity prices
exchange-rate devaluation
JEL: 
F31
F33
F36
F41
N10
N20
Document Type: 
Working Paper
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