Unveiling the Dance of Commodity Prices and the Global Financial Cycle

Luciana Juvenal and Ivan Petrella

No 2024/082, IMF Working Papers from International Monetary Fund

Abstract: We examine the impact of commodity price changes on the business cycles and capital flows in emerging markets and developing economies (EMDEs), distinguishing between their role as a source of shock and as a channel of transmission of global shocks. Our findings reveal that surges in export prices, triggered by commodity price shocks, boost domestic GDP, an effect further amplified by the endogenous decline of country spreads. However, the effects on capital flows appear muted. Shifts in U.S. monetary policy and global risk appetite drive the global financial cycle in EMDEs. Eased global credit conditions, attributed to looser U.S. monetary policy or lower global risk appetite, lead to a rise in export prices, higher output, a decrease in government borrowing costs, and stimulate greater capital flows. The endogenous response of export prices amplifies the output effects of a more accommodative U.S. monetary policy while country spreads magnify the impact of shifts in global risk appetite.

Keywords: risk appetite; energy commodity; commodity channel; commodity price instrument; commodity event; impact of commodity price fluctuation; commodity export; fluctuations in commodity price; monetary policy shock; commodity prices to shock; interaction term; commodity prices to a BAA; commodity c; Commodity prices; Export prices; Capital flows; Commodity price shocks; Commodity price fluctuations; Global (search for similar items in EconPapers)
Pages: 61
Date: 2024-04-05
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg, nep-ifn, nep-mon and nep-opm
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Related works:
Journal Article: Unveiling the dance of commodity prices and the global financial cycle (2024)
Chapter: Unveiling the Dance of Commodity Prices and the Global Financial Cycle (2023)
Working Paper: Unveiling the Dance of Commodity Prices and the Global Financial Cycle (2023)
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