Political Risk and Commodity Currencies
Date
Authors
Dodd, Olga
Fernandez-Perez, Adrian
Sosvilla-Rivero, Simon
Supervisor
Item type
Journal Article
Degree name
Journal Title
Journal ISSN
Volume Title
Publisher
Elsevier
Abstract
We examine the impact of political risk on the relationship dynamics between commodity and currency returns in commodity-exporting countries. We find that the typically positive contemporaneous relationship between commodity and currency returns disappears when political risk increases. This finding is in line with the rare disasters model of Farhi and Gabaix (2016), with the negative effect of political risk being transmitted to foreign exchange rates indirectly by affecting the relationship between the foreign exchange and commodity returns. The results hold for various measures of political risk. The documented effect on the commodity-currency pricing relationship is driven by political risk, not economic uncertainty, and not by the appreciation of the US dollar during periods of heightened political risk. The documented effect is stronger for countries with high political risk. The implication is that commodity currencies do not benefit from commodity price increases during periods of heightened political risk.Description
Keywords
3801 Applied Economics, 3802 Econometrics, 35 Commerce, Management, Tourism and Services, 38 Economics, 3502 Banking, Finance and Investment, 1402 Applied Economics, Commodity currency, Political risk, Rare disaster risk, Geopolitical risk, Foreign exchange rate, Commodity return
Source
Journal of Commodity Markets, ISSN: 2405-8513 (Print); 2405-8505 (Online), Elsevier, 42, 100562-100562. doi: 10.1016/j.jcomm.2026.100562
Publisher's version
Rights statement
© 2026 The Authors. Published by Elsevier B.V. This is an open access article distributed under the terms of the Creative Commons CC-BY license, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. You are not required to obtain permission to reuse this article.