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Mr. Francisco Roch
This paper presents a comparative analysis of the macroeconomic adjustment in Chile, Colombia, and Peru to commodity terms-of-trade shocks. The study is done in two steps: (i) an analysis of the impulse responses of key macroeconomic variables to terms-of-trade shocks and (ii) an event study of the adjustment to the recent decline in commodity prices. The experiences of these countries highlight the importance of flexible exchange rates to help with the adjustment to lower commodity prices, and staying vigilant in addressing depreciation pressures on inflation through tightening monetary policies. On the fiscal front, evidence shows that greater fiscal space, like in Chile and Peru, gives more room for accommodating terms-of-trade shocks.
Leandro Medina

Shocks as a Source of Fluctuations in Primary Expenditures 4. Sample Period by Country 5. Responses to Commodity Price Shocks Figures 1. Country-Specific Commodity Price Indices 2. Commodity-Related Fiscal Revenues 3. Contribution of Commodity Price Shocks to the Variance of Primary Expenditure Growth 4. Response of Commodity Prices to One Standard Cholesky Innovation in 5. Accumulated Response of Commodity Prices to One Standard Cholesky 6. Accumulated Response of Primary Expenditures to One Standard Cholesky 7. Accumulated Response of Total

International Monetary Fund

Output Deflators 1. Introduction 2. Single-equation tests 3. Model simulations Text Tables 1. Theoretical Effects on Prices from Various Disturbances 2. Consumption of Primary Commodities in Major Industrial Countries, 1983–85 3. Tests on Consumer Prices Indexes for First-Order Integration, 1959–1988 4. Cointegration Tests, January 1957-September 1988 5. Granger Causality Tests for Relationships between Commodity Price and Consumer Price Indexes 6. Contribution of Commodity Prices and Monetary Growth to In-Sample Inflation Predictions 7

International Monetary Fund. Western Hemisphere Dept.

Contribution of Commodity Prices Shocks to the Variance of Primary Expenditure Growth Quarters After the Shock Chile Colombia Peru 1 2.06 0.89 6.53 2 4.56 0.69 4.31 3 4.46 1.81 5.16 4 4.48 1.99 5.16 5 4.48 1.98 5.23 6 4.48 1.98 5.23 7 4.48 1.98 5.23 8 4.48 1.98 5.22 9 4.48 1.98 5.22 10 4.48 1.98 5.23 Contribution of Commodity Prices Shocks to the Variance of Primary Expenditure Growth Quarters After the Shock Chile

Mr. Francisco Roch

about 5 percent of variations in primary expenditures at a 10-quarter horizon for both Chile and Peru, while they account for only 2 percent in Colombia. Similarly, commodity price fluctuations explain 25 and 20 percent of fluctuations in revenues in Chile and Peru respectively, and roughly 3 percent in the case of Colombia. Table 1 Contribution of commodity prices shocks to the variance of primary expenditure growth Quarters after the shock Chile Colombia Peru 1 2.06 0.89 6.53 2 4.56 0.69 4.31 3 4.46 1

Leandro Medina

Once government expenditures rise (and when the effects of the boom have faded), it may be very difficult to lower them, as described in Boccara (1994) . Since this kind of behavior has been pervasive in the region, it is important to explore its causes and consequences. Figure 2. Commodity-Related Fiscal Revenues (In percent of GDP) Figure 3. Contribution of Commodity Price Shocks to the Variance of Primary Expenditure Growth (In percent) The literature typically has focused on documenting the reaction of fiscal positions to the output

International Monetary Fund. Asia and Pacific Dept

inflation fluctuations in Asia, of which about three-quarters reflect commodity price shocks ( Figure 2.7 ). The contribution of commodity prices is particularly significant among ASEAN economies (except Indonesia), Japan, and Korea, which are among the largest oil importers in Asia. In general, commodity prices contribute more to inflation in economies that have higher oil intensity (defined as barrels of oil consumption divided by GDP in constant U.S. dollars) ( Figure 2.8 ). The contribution of commodity prices to inflation is smaller for high-income commodity

Ms. Carolina Osorio Buitron and Ms. Filiz D Unsal

account for most of the variation in Asia’s inflation during the last two decades. In particular: Supply shocks explain about 45 percent of the inflation fluctuations in Asia, of which about three-quarters reflect commodity price shocks ( Figure 6 ). The contribution of commodity prices is particularly significant among ASEAN economies (except Indonesia), Japan, and Korea, which are among the largest oil importers in Asia. In general, commodity prices contribute more to inflation in economies that have higher oil intensity (defined as barrels of oil consumption divided

Ms. Carolina Osorio Buitron and Ms. Filiz D Unsal
The perception that Asia's inflation dynamics is driven by idiosyncratic supply shocks implies, as a corollary, that there is little scope for a policy reaction to a build-up of inflationary pressures. However, Asia's fast growth and integration over the last two decades suggest that the drivers of inflation may have changed, and that domestic demand pressures may now play a larger role than in the past. This paper presents a quantitative analysis of inflation dynamics in Asia using a Global VAR (GVAR) model, which explicitly incorporates the role of regional and global spillovers in driving Asia's inflation. Our results suggest that over the past two decades the main drivers of inflation in Asia have been monetary and supply shocks, but also that, in recent years, the contribution of these shocks has fallen, whereas demand-side pressures have started to emerge as an important contributor to inflation in Asia.
International Monetary Fund

Real Effective Exchange Rate, 1980 - 2003 14. Although the contributions of commodity prices and net external income have been relatively minor in comparison, they have helped arrest the downward trend in recent years . The drop in Canada’s net foreign liabilities from the high level that emerged during 1985-1995 has reduced debt service costs and helped to return the current account balance into surplus, but this factor offset at most about a third of the impact of the Balassa-Samuelson effect. As for commodity prices, the contribution of the terms