Commodity prices and the macroeconomy: An extended dependent economy approach

► Proposes a new theoretical framework for analysing the impact of commodity price fluctuations on exchange rates, GDP and trade balances. ► Shows the severity of Dutch disease effects depends on how open an economy is. ► Provides a new theoretical rationale for the 'commodity currency' phenomenon. ► Shows how a free floating exchange rate acts as a useful shock absorber for national output in the face of commodity price shocks. ► Examines empirical implications of the model with reference to Australia and New Zealand, major commodity exporters in Asia.