Working Paper No. 1570, February 1985, Neer Working Paper Series
In this paper a model that analyzes the interaction between changes in commodity export prices, money creation, inflation, and the real exchange rate in a developing country is developed. The model is then tested using data for Colombia. A number of experts have argued that the fluctuations of Colombia’s real exchange rate have been mainly determined by world coffee price changes, with more observers emphasizing the consequences of coffee price changes on money creation and inflation.