Exchange-Rate Economics for the Resources Sector

Abstract

The paper provides an account of aspects of exchange-rate economics that are of particular relevance to the resources sector. The issues discussed include exchange-rate volatility and risk management practices used to deal with it, the role of productivity differences across countries, the impact of a booming resources sector on the country’s exchange rate and approaches to forecasting exchange rates. The discussion is organised around a simple stylised model that emphasises the quantity theory of money and purchasing power parity as a long-run link between prices and exchange rates.