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Commodity and Financial Cycles in Resource-based Economies

Marina Tiunova

Russian Journal of Money and Finance, 2019, vol. 78, issue 3, 38-70

Abstract: This research analyses the influence of commodity prices on financial cycle parameters in commodity-exporting countries – Australia, Brazil, Canada, Columbia, Russia, and Chile – over the past two decades. One of the key issues discussed herein is the degree to which the extensive implementation of macroprudential policies can reduce the dependence of a country on global commodity cycles. Methodologically, this research is based on the Bayesian Structure Vector Autoregressive Model, structurally identified by means of variable recursive ranking and the Cholesky decomposition of the error covariance matrix. Changes in commodity prices are shown to provoke a stronger response from such financial cycle parameters as the sovereign risk premium and currency exchange rate in resource-based emerging market economies (Brazil, Columbia, Chile, and Russia) than in advanced economies (Canada and Australia). In Brazil, Columbia, Chile, and Russia, increases in commodity prices result in acceleration of the over all lending and external debt growth rate, while in Russia and Brazil they also trigger growth in the share of FX loans. In Australia and Canada, lending parameters react negatively to positive commodity price shocks. In the developing countries that apply macroprudential policy extensively (Columbia and Chile), lending dynamics are less dependent on changes in the global terms of trade. To reduce the impact of the commodity cycle on the financial cycle, the economic policy authorities of emerging market countries should develop national financial markets and introduce macroprudental policy tools more extensively.

Keywords: terms of trade; commodity shocks; credit and financial cycles; emerging markets; foreign currency predominance; macroprudential policies; vector autoregression (search for similar items in EconPapers)
JEL-codes: C32 F38 G15 G28 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.31477/rjmf.201903.38

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Handle: RePEc:bkr:journl:v:78:y:2019:i:3:p:38-70