Commodity Export Boom and the Real Exchange Rate : the Money-Inflation Link

This paper analyzes the relation between exogenous changes in commodity export prices and the real exchange rate in a monetary economy. The traditional Dutch?Disease case is extended, and the monetary consequences of an export boom are explored. It is shown that commodity export booms can generate, in the short run, either an excess demand or an excess supply for money. In a monetary setting the short-run behavior of the real exchange rate can differ significantly from the more traditional Dutch-Disease case without money. The model is tested using data for Colombia