Commodity cycles and financial instability in emerging economies

Mikhail Andreev, M. Udara Peiris (), Alexander Shirobokov and Dimitrios Tsomocos
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Mikhail Andreev: Bank of Russia, Russian Federation
M. Udara Peiris: Oberlin College
Alexander Shirobokov: ICEF, HSE University, Russian Federation
Authors registered in the RePEc Author Service: Mikhail Yurievich Andreyev

Annals of Finance, 2024, vol. 20, issue 2, No 1, 167-197

Abstract: Abstract Commodity-exporting economies display procyclicality with the price of commodity exports. However, the evidence for the relative importance of commodity price shocks for aggregate fluctuations remains inconclusive. Using Russian data from 2001 to 2018 we estimate a small open economy New Keynesian model with a banking system and leveraged domestic firms who default on their unsecured domestic debt. We show that allowing default rates to vary endogenously over the business cycle amplifies the estimated contribution of commodity price shocks. Endogenous default introduces time-varying wedges that amplify the response of commodity price shocks through demand and income effects rather than the relative price effects that are found in the country risk-premium, balance sheet, and financial accelerator channels. We find that the contribution of commodity prices to explaining fluctuations in GDP rises from 2.5 to 33.6% while for deposits and non-performing loans, it increases from 5.3% and 1.6% to 71.3% and 60.4%, respectively.

Keywords: Business cycles; Small open economy; Emerging markets; Commodity prices; Financial stability; Macroprudential policy (search for similar items in EconPapers)
JEL-codes: F34 G15 G18 (search for similar items in EconPapers)
Date: 2024
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Working Paper: Commodity Cycles and Financial Instability in Emerging Economies (2020)
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DOI: 10.1007/s10436-024-00443-8

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