The role of commodity terms of trade in the determination of the real exchange rates of the Mediterranean countries

The aim of this paper is to investigate whether there exists a long-run relationship between the real exchange rate and the commodity terms of trade in the so-called Mediterranean or MENA countries. These economies are good candidates for this type of formulation, as are commodity exporting countries. Using cointegration techniques, we find long-run relationships linking the real exchange rate and a commodity-based measure of the terms of trade. Therefore, commodity terms of trade are a potential explanation for the apparent nonstationarity of MENA countries’ real exchange rates previously found in the empirical literature.