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Leandro Medina
The recent boom and bust in commodity prices has raised concerns about the impact of volatile commodity prices on Latin American countries’ fiscal positions. Using a novel quarterly data set-which includes unique country-specific commodity price indices and a comprehensive measure of public expenditures-this paper analyzes the dynamic effects of commodity price fluctuations on fiscal revenues and expenditures for eight commodity-exporting Latin American countries. The results indicate that Latin American countries’ fiscal positions react strongly to shocks to commodity prices, yet there are marked differences across countries. Fiscal variables in Venezuela display the highest sensitivity to commodity price shocks, with expenditures reacting significantly more than revenues. At the other end of the spectrum, in Chile expenditure reacts very little to commodity price fluctuations, and the dynamic responses of its fiscal indicators are very similar to those seen in high-income commodity-exporting countries. This distinct behavior across countries may relate to institutional arrangements, which in some cases include the efficient application of fiscal rules amid political commitment and high standards of transparency.
Leandro Medina

. The number of included lags (1 to 6) is determined based on the Hannan-Quinn information criterion. B. Data In order to study the effects of commodity price fluctuations on fiscal positions, I use a novel database for 12 commodity-exporting countries, covering a period that differs from country to country, beginning as early as the first quarter of 1975, depending on the country, and ending in the last quarter of 2008. This data set uses unique Country-Specific Commodity Price Indices (CSCPI) that combine international prices of 55 commodities (from the

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.
Mr. Eduardo Borensztein, Mr. Peter Wickham, Mr. Mohsin S. Khan, and Ms. Carmen Reinhart

in government revenues. 34 Role of Government in Smoothing Income Before examining some of the policy prescriptions that have been advanced to help deal with international commodity price variability and its macroeconomic effects, it is worth considering whether it is desirable to split the effects of temporary commodity price movements on private producers and on government. A traditional argument for government to absorb the effects of commodity price fluctuations is based on microeconomic considerations relating to the behavior of private agents. 35 If

Mr. Francisco Roch

New Zeland. Cashin and Kent (2003) find that the current account tends to move in the opposite direction to the ToT shock. Agenor and Aizenman (2004) find that increases in the permanent component of the ToT are associated with higher private savings rates in sub-Saharan Africa. Deaton and Miller (1996) examines the effects of commodity-price fluctuations on national output and its components in sub-Saharan Africa, and do not find that commodity booms are generally harmful. However, Bleaney and Greenway (2001) find that growth in this region is negatively

Ms. Carmen Reinhart and Mr. Peter Wickham

government to absorb the effects of commodity price fluctuations is based on microeconomic considerations relating to the behavior of private agents. 24 If private agents bear all the commodity price risk, they will tend to face variable and unpredictable income streams over time, with possibly very limited opportunity to smooth consumption. Therefore, it may be best for the government to intervene to stabilize the prices received by private agents and thus enhance the welfare of risk‐averse individuals by permitting smoother income and consumption streams. Empirical

Bertrand Gruss

exceptions (for example, Deaton and Miller, 1996 ; Dehn, 2000 ; Céspedes and Velasco, 2012 ), most studies on the macroeconomic effects of commodity-price fluctuations have used either prices of individual commodities, aggregate (that is, not country-specific) indices of commodity prices, or standard terms-of-trade measures. None of these alternatives, however, is particularly suited for the purposes here. First, few commodity exporters are so specialized that focusing on just one commodity price is enough (except maybe for the case of some oil producers). Second, there

Bertrand Gruss

paper, documents how it evolved during the recent boom for individual LAC countries, and uses commodity futures to infer how they might evolve over the medium term. A. A Country-specific Net Commodity Price Index (NCPI) With a few exceptions (e.g., Deaton and Miller, 1996 ; Dehn, 2000 ; Céspedes and Velasco, 2012 ), most studies on the macroeconomic effects of commodity-price fluctuations have used either prices of individual commodities, aggregate (i.e., not country-specific) indices of commodity prices, or standard terms-of-trade measures. None of these

International Monetary Fund
We compile a historical dataset covering nearly 40 years of booms and busts in the commodity terms of trade of over 150 countries. We discuss the characteristics of these events and their effects on macroeconomic performance and, in particular, compare the most recent commodity-price cycle with its historical precedents.
International Monetary Fund

country-specific commodity booms and busts, analyze the key characteristics of such booms and busts, and discuss how the latest episodes compare with previous ones. Finally, we analyze the macroeconomic consequences of commodity booms and busts, again with a focus on differences between the latest episodes and previous ones. II. T he C ommodity T erms of T rade In order to focus on the effects of commodity-price fluctuations on countries that both export and import primary commodities, we use a country-specific measure of the commodity terms of trade (CTOT