No Access

Department of Economics, Indiana University of Pennsylvania, Indiana, PA 15705, USA

and

Department of Economics, Indiana University of Pennsylvania, Indiana, PA 15705, USA

https://doi.org/10.1142/S2194565919500155Cited by:0 (Source: Crossref)

Abstract

While the underground economy is not explicitly included in the measure of (GDP), the cocaine trade has been a major source of revenue for Colombia. Using quarterly cocaine prices from 1982 to 2007 published by the Office of National Drug Control Policy, this paper uses vector error correction and forecast error variance decomposition methods to look at the relationship between cocaine prices and the peso/$ nominal exchange rate. Our results indicate cocaine prices affect the value of the Colombian peso, which leads to some interesting policy implications.

Keywords:

JEL Classification: F21, F41, E61, C32

References

Arkes, J et al. (2008). Why the DEA Stride Data are Still Useful for Understanding Drug Markets. No. w14224. National Bureau of Economic Research. Google Scholar
Banco de Colombia (2018). Accessed April 21, 2017. https://www.grupobancolombia.com/wps/portal/personas. Google Scholar
Bashar, OKMR and SH Kabir [2013] Relationship between commodity prices and exchange rate in light of global financial crisis: Evidence from Australia. International Journal of Trade, Economics and Finance, 4, 265–269. Crossref, Google Scholar
Blanchard, O and D Quah [1989] The dynamic effects of aggregate demand and supply disturbances. American Economic Review, 79, 655–673. Google Scholar
Chen, Y-C [2002] Exchange Rates and Fundamentals: Evidence from Commodity Economies. Mimeograph: Harvard University. Google Scholar
Chen, Y-C and K Rogoff [2003] Commodity currencies. Journal of International Economics, 60.1, 133–160. Crossref, Google Scholar
Clements, KW and R Fry [2008] Commodity currencies and currency commodities. Resources Policy, 33.2, 55–73. Crossref, Google Scholar
Dion, ML and C Russler [2008] Eradication efforts, the state, displacement and poverty: Explaining coca cultivation in Colombia during Plan Colombia. Journal of Latin American Studies, 40.3, 399–421. Crossref, Google Scholar
Engle, RF and CWJ Granger [1987] Co-integration and error correction: Representation, estimation, and testing. Econometrica: Journal of the Econometric Society, 55.2, 251–276. Crossref, Google Scholar
Hatzinikolaou, D and M Polasek [2005] The commodity-currency view of the Australian dollar: A multivariate cointegration approach. Journal of Applied Economics, 8.1, 81. Crossref, Google Scholar
Hegerty, SW (2012). Exchange market pressure, commodity prices, and contagion in Latin America. Journal of International Trade & Economic Development, in press, doi:10.1080/09638199.2012.679292. Google Scholar
Jofre-Bonet, M and NM Petry [2008] Trading apples for oranges? Results of an experiment on the effects of Heroin and Cocaine price changes on addicts’ polydrug use. Journal of Economic Behavior & Organization, 66.2, 281–311. Crossref, Google Scholar
Jones, CM [2013] Trends in the Distribution of Selected Opioids by State, US, 1999–2011. Baltimore, MD: National Meeting Safe States Alliance. Google Scholar
MacDonald, R and LA Ricci [2004] Estimation of the equilibrium real exchange rate for South Africa. South African Journal of Economics, 72.2, 282–304. Crossref, Google Scholar
National Academies of Sciences, Engineering, and Medicine [2017] Pain Management and the Opioid Epidemic: Balancing Societal and Individual Benefits and Risks of Prescription Opioid Use. National Academies Press. Google Scholar
Observatory of Economic Complexity (2018). Accessed April 25, 2017. https://atlas.media.mit.edu/en/. Google Scholar
Schaling, E, X Ndlovu and P Alagidede [2014] Modelling the rand and commodity prices: A Granger causality and cointegration analysis. South African Journal of Economic and Management Sciences, 17.5, 673–690. Google Scholar
Scott Hacker, R, HK Karlsson and K Månsson [2012] The relationship between exchange rates and interest rate differentials: A wavelet approach. The World Economy, 35.9, 1162–1185. Crossref, Google Scholar
Simpson, JL (2002). “The relationship between commodity prices and the Australian dollar EFMA 2002 London Meetings.” SSRN: http://ssrn.com/abstract=314872 or doi: 10.2139/ssrn.314872. Accessed April 10, 2019. Google Scholar
Sims, CA, [1980] Macroeconomics and reality. Econometrica: Journal of the Econometric Society, 1–48. Crossref, Google Scholar
Stock, JH and MW Watson, [2001] Vector autoregressions. Journal of Economic Perspectives 15.4, 101–115. Crossref, Google Scholar
System to Retrieve Information on Drug Enforcement (2018). Accessed 15 April, 2017. https://www.dea.gov/resource-center/stride-data.shtml. Google Scholar
Taylor, G and S Menzel [2000] Cocaine Quagmire: Implementing the U.S. Anti-Drug Policy in the North Andes-Colombia, University Press of America. Google Scholar
Thompson, A and C Jeffords [2019] Retail margins in illegal drug markets. Economic Analysis and Policy, 62, 187–191. Crossref, Google Scholar
United Nations Office on Drugs and Crime. Accessed April 18, 2017. http://www.unodc.org/. Google Scholar
United Nations Office of Drugs and Crime. Accessed March 21, 2019. https://www.unodc.org/unodc/en/data-and-analysis/drug-production-and-trafficking.html. Google Scholar
Urrutia, M [1981] Experience with the crawling peg in Colombia. In John Williamson (ed.), Exchange Rate Rules. New York: St. Martin’s Press, pp. 207–229. Crossref, Google Scholar
Weisner, E [1978] Politica Monetaria y Cambiaria en Colombia. Bogota: Asociaciori Bancaria de Colombia. Google Scholar
Zhu, H et al. [2014] Correlation between cocaine prices and purity with trends in emergency department visits in a major metropolitan area. Journal of Urban Health, 91.5, 1009–1018. Crossref, Google Scholar