USD–PYG and Agricultural Export Prices: An Econometric Analysis

This working paper examines the relationship between the USD–Paraguay Guaraní (USD–PYG) exchange rate and agricultural export prices, with a focus on Paraguay as an export-dependent, commodity-driven economy. An aggregate agricultural export price index is constructed using international prices of soybeans, corn, wheat, and beef, which together represent the core of Paraguay’s agricultural export basket. Cotton is deliberately excluded due to inconsistent export coverage and limited data reliability across the sample period. All price series are transformed into natural logarithms to allow elasticity-based interpretation and to improve the statistical properties of the regression model. Given the instability and incompleteness of export-share data over time, the agricultural price index is computed as an equal-weighted average of logarithmic commodity prices, ensuring transparency and robustness while avoiding potential bias from fluctuating export weights. The econometric framework relates the logarithm of the USD–PYG exchange rate to the logarithm of the constructed agricultural export price index. The results indicate that agricultural export prices explain a substantial portion of exchange-rate variation, accounting for approximately 42 percent of the observed movements. The estimated coefficient is negative and statistically significant, suggesting that increases in agricultural export prices are associated with an appreciation of the Paraguayan Guaraní. These findings support the characterization of Paraguay’s currency as commodity-linked, highlighting the central role of agricultural exports in shaping external sector dynamics. The paper contributes to the empirical literature on exchange rates in small open economies and provides a foundation for future extensions incorporating export-share weighting, global financial variables, and broader macroeconomic controls.