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Chinese resource demand or commodity price shocks: Macroeconomic effects for an emerging market economy

Renee Fry-McKibbin () and Rodrigo da Silva Souza

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: This paper empirically addresses the hypothesis that of the external commodity based sector, Chinese resource demand is the most important driver of emerging market economy business cycles using Brazil as a representative case. Using a structural VAR to examine the effects of Chinese resource demand, world commodity prices and foreign output on domestic macroeconomic variables, we show that shocks to Chinese demand induce an expansion in Brazilian resource exports, the non-tradeable primary commodity sector and other domestic activity. Commodity price shocks are less favorable than Chinese resource demand shocks. Our findings identify the important role of the interest rate in amplifying the real effects of the commodity sector boom, in contrast to the role of the interest rate in developed countries. By incorporating Chinese resource demand in addition to commodity prices, commodity prices play a smaller role in explaining the variance of domestic output than found in previous literature.

Keywords: Brazil; EME business cycles; Dutch disease; SVAR (search for similar items in EconPapers)
JEL-codes: C51 E32 F43 F62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-opm
Date: 2018-09
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2018-45

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