Commodity price shocks, labour market dynamics and monetary policy in small open economies

Ruthira Naraidoo and Juan Paez-Farrell

Journal of Economic Dynamics and Control, 2023, vol. 151, issue C

Abstract: We analyse the transmission mechanism of commodity price shocks in inflation targeting emerging economies. Using a panel vector autoregression, we find that for a commodity exporter, the shock causes a real exchange rate appreciation, increases in output, inflation, the nominal interest rate and the trade balance, and a fall in the unemployment rate. The mechanism underlying the dynamics driving the VAR can be understood using a dynamic stochastic general equilibrium model. Search and matching frictions in the labour market and the conduct of monetary policy are key for the model to match the data.

Keywords: Commodity prices; Emerging markets; Inflation; Monetary policy; Search and matching; Unemployment; Dutch disease; DSGE modelling; Bayesian impulse response matching (search for similar items in EconPapers)
JEL-codes: E31 E32 E44 E52 E61 F42 O11 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:151:y:2023:i:c:s016518892300060x

DOI: 10.1016/j.jedc.2023.104654

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