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Global liquidity and commodity market interactions: Macroeconomic effects on a commodity exporting emerging market

Rodrigo da Silva Souza and Renee Fry-McKibbin ()

International Review of Economics & Finance, 2021, vol. 76, issue C, 781-800

Abstract: This paper examines the effects of commodity demand and supply shocks as well as international liquidity shocks on the small open economy of Brazil using an SVAR model. The paper highlights the importance of modelling both types of shocks in the commodity sector. Including only commodity prices overstates the effect of commodity price shocks on the output of Brazil. Commodity demand shocks are much larger than commodity supply shocks in the long run. Including commodity demand and international liquidity also reduces the impact of commodity price shocks on the interest rate made available to Brazil in international capital markets. There is little evidence of Dutch disease for Brazil. However, our results show that Brazil is vulnerable to external shocks.

Keywords: Commodity demand shocks; Commodity supply shocks; Emerging market interest rates; Brazil; Dutch disease; SVAR (search for similar items in EconPapers)
JEL-codes: C51 E32 F43 F62 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.iref.2021.07.008

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