DOCSLIB.ORG

1. Outlook: Dealing with Shocks

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
1. Outlook: Dealing with Shocks 1. Outlook: Dealing with Shocks After holding up well in early 2008, growth slowed account imbalances caused the euro to appreciate markedly in Europe, mainly owing to the ongoing impact of disproportionately—beyond its medium-term external shocks. Inflation rose to levels not seen in a decade, equilibrium value (Box 1)—exerting a drag on but with commodity prices stabilizing and the prospect of very growth. weak activity, inflationary pressures are expected to recede. Commodity price shocks have played an Advanced economies have been hit by extraordinary financial important role in the slowdown in activity in stress whose alleviation has become the overriding policy Europe, but tightening financial conditions have concern. For most emerging economies, where resource now taken over. Commodity price shocks adversely pressures continue even though growth is moderating, the affected consumption in a few advanced economies principal challenges are to bring inflation under control and already in the second half of 2007. This process address external imbalances. Meanwhile, contingency plans came to a head in the second quarter of 2008, when need to be prepared to deal with possible financial instability.* the price level in the euro area jumped by nearly 2 percent above the first quarter, triggering a Advanced Economies significant decline in consumption. Investment, which had held up well, also fell as confidence Commodity Price Shocks Helped plummeted and evidence surfaced of the worsening Trigger Sharp Slowdown and Caused consequences for Europe of the global financial High Inflation turmoil. While the euro area initially resisted the Mostly external factors have dampened economic adverse shocks somewhat better than the United activity in the advanced economies of Europe.1 The States, it has subsequently slowed faster, as dollar commodity price shocks intensified in the first half depreciation and more expansionary of 2008, causing a spike in headline inflation and macroeconomic policies have helped support sapping real disposable income and consumer growth in the United States. demand (Figure 1). Financial turmoil, which was Meanwhile, headline inflation in Europe rose to a expected to dissipate, instead worsened again, first in level not seen in a decade, though there are some June–July 2008, when large financial institutions tentative signs that it may have peaked in June–July came under renewed pressure, and more recently in 2008 (Figure 1). For the euro area, headline September with the failure of some large U.S. inflation, after being pushed up repeatedly by a financial institutions. Europe was affected directly, sequence of commodity price shocks, stabilized at 4 through bank losses and an associated tightening of percent in July 2008, before easing to 3.8 percent in financial conditions for borrowers, and indirectly, August 2008 as the result of falling energy prices. through a weakening of demand from the United Inflation, excluding energy, food, alcohol, and States, where the turmoil originated. Moreover, tobacco, has been relatively stable throughout, insufficient progress in resolving global current _______ remaining below 2 percent. Observations on other Note: The main authors of this chapter are Thomas Harjes and advanced economies are similar, but the upward Athanasios Vamvakidis. momentum in headline inflation has yet to turn in 1 For the purpose of this document, Europe is divided into Norway, Sweden, and the United Kingdom. advanced and emerging economies. The latter comprise Albania, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, the Czech Inflation expectations edged up following the latest Republic, Estonia, Hungary, Latvia, Lithuania, FYR Macedonia, spike in energy prices but have subsequently Moldova, Montenegro, Poland, Romania, Russia, Serbia, the receded, especially in the euro area. Moreover, when Slovak Republic, Turkey, and Ukraine. All other European adjusted for inflation risk premiums, break-even economies are included in the group of advanced economies. 1 ©International Monetary Fund. Not for Redistribution REGIONAL ECONOMIC OUTLOOK: EUROPE Figure 1. Key Short-Term Indicators The surge in commodity prices... ...pushed up headline inflation… 280 280 5 5 Food and Oil Commodity Indices, 2006–08 1/ Headline and Core Inflation, 2006–08 (Percent) 4 Core, euro area 1/ 4 Commodity food price index 230 230 Headline, euro area Average petroleum spot price Core, United Kingdom 1/ index 2/ Headline, United Kingdom 3 3 180 180 2 2 130 130 1 1 80 80 0 0 6 6 7 8 7 6 6 6 6 7 7 7 7 8 8 8 4 5 6 7 4 5 6 7 8 4 5 6 7 8 4 5 6 7 8 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - l l l r r r l l l l l t t t t y r r r r r v y v y n p n p n n n n n n u u u a a a u u u u u c c c c a p p p p p o a o a a e a e a a a a a a J J J J J J J J J J J A O A O A O A O A M M M J J J J J N N S S M M M Source: IMF staff calculations. Source: Eurostat. 1/ In terms of U.S. dollars, 2005 = 100. 1/ Harmonized index of consumer price inflation (excluding energy, 2/ Average of U.K. Brent, Dubai, and West Texas Intermediate, equally food, alcohol, and tobacco). weighted. ...dampening business... …and consumer confidence. 15 15 6 6 Euro Area: Purchasing Managers' Index and Euro Area: Retail Sales and Consumer Industrial Confidence Indicator, January Confidence, January 2004–August 2008 12 2004–August 2008 12 4 4 9 9 2 2 6 6 0 0 3 3 -2 -2 0 0 Purchasing -4 -4 -3 -3 managers' index 1/ EA-13: retail sales volume 1/ Industrial confidence indicator 2/ -6 Consumer confidence indicator -6 -6 -6 2/ -9 -9 -8 -8 4 5 6 7 8 4 5 6 7 8 4 5 6 7 4 5 6 7 4 5 6 7 8 4 5 6 7 8 4 5 6 7 8 4 5 6 7 8 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - l l l l l l l l l l t t t t t t t t r r r r r r r r r r n n n n n n n n n n u u u u u u u u u u c c c c c c c c p p p p p p p p p p a a a a a a a a a a J J J J J J J J J J A O A O A O A O A A O A O A O A O A J J J J J J J J J J Sources: Eurostat, European Commission Business and Consumer Sources: Eurostat; European Commission Business and Consumer Surveys; Haver Analytics; and IMF staff calculations. Surveys; and IMF staff calculations. 1/ Seasonally adjusted; deviations from an index value of 50. 1/ Three-month moving average of annual percentage changes. 2/ Percentage balance; difference from the value three months 2/ Percentage balance; difference from the value three months earlier. earlier. Financial strains intensified... …raising the cost of finance. 180 180 350 350 iTraxx CDS Europe Index, iBoxx Euro-Corporate Bond Spread over 160 January 2006–September 2008 160 Five-Year German Bond Rate, (Basis points) 300 January 2006–September 2008 300 140 140 (Basis points) 250 250 120 120 100 100 200 200 80 80 150 150 60 60 100 100 40 40 Financial 50 BBB 50 20 Nonfinancial 20 AAA 0 0 0 0 7 8 7 7 7 7 7 7 8 8 8 7 7 7 8 8 8 7 7 8 8 6 7 8 6 7 6 6 8 6 7 7 7 8 8 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 - - - 0 0 0 0 0 0 - 0 0 - - 0 - 0 - - - 0 - - - - - - - - - - - 0 0 0 l l t - r r r r - - - - - - - - - - - - - c y y v b b n n n n g p g p l l l u c u y y y a p a p v v n n n p p p e a a o e e a u a u u e u e u u u J J a a a o o A O A a a a e e e J J J J F M F M J J J N A S D A S M M J J J Mar-06 Mar-07 Mar-08 S N S N S M M M Source: Datastream. Source: Datastream. 2 ©International Monetary Fund. Not for Redistribution OUTLOOK: DEALING WITH SHOCKS Box 1. How Strong Is the Euro? On the eve of its 10-year anniversary, the euro Euro Exchange Rate, January 1999–June 2008 remains close to the strongest it has ever been, (Average, 1999 to 2007 = 100, unless otherwise indicated) 170 1.9 though the trend appreciation that began at the Real effective exchange rate (CPI-based) end of 2005 may have ended in August 2008. Nominal effective exchange rate (CPI-based) 1.7 150 Relative price index At its current level, the euro is assessed to have Equilibrium real effective exchange rate Real effective exchange rate (ULC-based) appreciated beyond its fundamental 1.5 U.S.
Load more

Recommended publications
  • ISFIRE an Exclusive Interview With: Islamic Nancereview.Co
    Special Focus on Risk and Trust in Islamic Banking & Finance ISFIRE An Exclusive Interview with: islamicnancereview.co DATO’ ADNAN ALIAS Volume 4 - Issue 4 | November 2014 - £20 CEO, IBFIM A Special Report on GLOBAL ISLAMIC FINANCE AWARDS 2014 Sponsored by: Published by: ibm.com edbizconsulting.com EDBIZ CORPORATION Product Development Shari’a Advisory Edbiz Consulting (London) Edbiz Research & Analysis Edbiz Corporation Consulting (Pakistan) Publications Training & Conferences Our products and services are underpinned by a common goal: promoting and advocating the ethical values inherent in Islamic nance Edbiz Consulting is a truly unique, international Islamic nance think tank, committed to engendering the value proposition that Islamic nance serves to oer in the global nancial markets. Edbiz Consulting provides multiple services that balance the dual purpose of developing thought leadership in this niche industry and strengthening the Islamic nance capacity for businesses and banks. Our client base is diverse and includes nancial institutions, governments, education providers, established businesses and entrepreneurs. Global Islamic Finance ISFIRE Report islamicnancereview.co 2015 ISLAMIC FINANCE LEADERSHIP PROGRAMME www.edbizconsulting.com ’ala Wa’d Gha l Ju rar M Visit us on: www.gifr.net afu ai ak sa at anking Mud r R c B a ib an ic at Mu ra a B ba Zak amlat b m r Ri Taw a Z l a isa ar a fu l a ru M k a Is M q a ar Is u t k r la a e ha m d M T G - c ic a u d F e n ’ i r a a n i m R a W a b n l a c l n l e a u i a ’ t f I R u s a
    [Show full text]
  • The Effect of Commodity Price Shocks on Underlying Inflation: the Role of Central Bank Credibility*
    Federal Reserve Bank of Dallas Globalization and Monetary Policy Institute Working Paper No. 134 http://www.dallasfed.org/assets/documents/institute/wpapers/2012/0134.pdf The Effect of Commodity Price Shocks on Underlying Inflation: The Role of Central Bank Credibility* J. Scott Davis Federal Reserve Bank of Dallas December 2012 Abstract This paper seeks to document and explain the effect of a commodity price shock on underlying core inflation, and how that effect changes both across time and across countries. Impulse responses derived from a structural VAR model show that across many countries there was a break in the response of core inflation to a commodity price shock. In an earlier period, a shock to commodity prices would lead to a large and significant increase in core inflation, but in later periods, the effect was insignificant. To explain this, we construct a large-scale DSGE model with both headline and core inflation, and most significantly, a mechanism whereby fluctuations in inflation caused by purely transitory shocks can become incorporated into long-term inflation expectations. Inflation has a trend and a cyclical component. Private agents cannot distinguish between the two, so a cyclical fluctuation in inflation may be confused for a shift in the trend component. Bayesian estimation reveals that there was a change between the earlier and the later periods in the parameter that governs the anchoring of expectations. Impulse responses derived from simulations of the model show that this change in the effect of commodity prices on core inflation is driven by the change in the anchoring of inflation expectations.
    [Show full text]
  • Macroeconomic Effects of Falling Commodity Price: Evidence from Democratic Republic of the Congo
    Munich Personal RePEc Archive Macroeconomic effects of falling commodity price: Evidence from Democratic Republic of the Congo PINSHI, Christian P. University of Kinshasa May 2018 Online at https://mpra.ub.uni-muenchen.de/101068/ MPRA Paper No. 101068, posted 14 Jun 2020 18:40 UTC Macroeconomic effects of falling commodity price: Evidence from Democratic Republic of the Congo Christian P. Pinshi1 Abstract This paper assesses the shock impact of commodity prices on the macroeconomic framework in the Democratic Republic of the Congo. Using a Vector autoregressive (VAR) model, we determine the impulses of each macroeconomic sector to lower prices. The results indicate that this shock leads to complex effects that can lead to systemic risks and crises. We suggest that it would be important for governments, given such shocks, to learn from and take immediate action to strengthen the resilience of the economy and the financial system to future shocks in based. JEL Classification: Q02, F41, E60 Keywords: Commodity prices, macroeconomic behavior 1 University of Kinshasa, [email protected] 1 1. Introduction Commodities are the economic preserve of many developing countries. They are of systemic importance in these countries, so that their economic growth is stimulated by soaring commodity prices (Helbling et al., 2008) and the dynamics of capital inflows and sovereign wealth funds. is fueled by commodity revenues. Between 2012 and 2016, there was a sharp downward shift in the prices of several commodities (Table 1). Many sub-Saharan countries exporting commodities have seen their economies enter a crisis (Banque de France, 2015) following the collapse in commodity prices.
    [Show full text]
  • Impact of Commodity Price Volatility on External Debt: the Role of Exchange Rate Regimes
    Munich Personal RePEc Archive Impact of Commodity Price Volatility on External Debt: The Role of Exchange Rate Regimes Majumderad, Monoj Kumar and Raghavan, Mala and Vespignani, Joaquin L. University of Tasmania 4 January 2021 Online at https://mpra.ub.uni-muenchen.de/105269/ MPRA Paper No. 105269, posted 25 Jan 2021 14:20 UTC Impact of Commodity Price Volatility on External Debt: The Role of Exchange Rate Regimes Monoj Kumar Majumder a,d, Mala Raghavan a,b, Joaquin Vespignani a,b a Tasmanian School of Business and Economics, University of Tasmania, Australia c Centre for Applied Macroeconomic Analysis, Australian National University, Australia d Department of Agricultural Economics, Sher-e-Bangla Agricultural University, Bangladesh Abstract This study explores the impact of commodity price volatility on external debt accumulation under fixed, managed, and floating regimes. We estimate dynamic panel data models for 97 countries from 1993 to 2016. Our empirical findings show that commodity price volatility increases external debt accumulation for commodity-exporting countries. This impact is three- times higher for countries with fixed exchange rate regimes compared to managed floating exchange rate regimes. Under floating exchange regimes, the effect of commodity price volatility on external debt is statistically insignificant. Our results suggest that the adoption of a floating exchange rate regime by commodity-exporting countries is critical to mitigate the effects of commodity price volatility on external debt accumulation. Keywords: Commodity price volatility, external debt, commodity-exporting countries, exchange rate regime JEL classification: E62, F31, F34, G01 Corresponding authors. E-mail addresses: [email protected] (M. K. Majumder) [email protected] (M.
    [Show full text]
  • The Role of Interest Rate Policy in the Generation and Propagation of Business Cycles: What Has Changed Since the 30’S?
    The Role of Interest Rate Policy in the Generation and Propagation of Business Cycles: What Has Changed Since the 30’s? by Christopher A. Sims Pre-conference draft #2, June 19, 1998 Post-conference draft revised August 19, 1998 Introduction Governments have two broad classes of macroeconomic impact. One has to do with the way government liabilities, including cash, interact with other traded assets in the financial system. The other has to do with government absorption and production of real resources through non- neutral taxation and provision of government goods and services like roads, schooling and public health measures. There is some evidence that fluctuations in the latter class of impact are important1, and it can be shown theoretically that the effects could be substantial and are hard to pin down quantitatively on the basis of a priori reasoning2. Policy discussion and the macroeconomic literature may have overemphasized the former, financial class of impacts. Nonetheless, this paper focuses on the financial impact. It presents empirical evidence, similar to much that has appeared previously using time series statistical modeling, that only a small portion of business cycle variation in the US since 1948 can be attributed to fluctuations in monetary policy. Though this conclusion is not universally accepted, it is far from new. This paper therefore goes on to consider two additional possible ways of demonstrating important effects of monetary policy. It expands the usual time frame of the literature, extending its model to the interwar period, and it examines the behavior of the model with counterfactual variations in the equation describing policy behavior.
    [Show full text]
  • Commodities and Development Report 2017
    UNCTAD UNCTAD UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS and FAO Commodities and Development Report 2017 Commodities and Development Report 2017 Commodity Markets, Economic Growth and Development Commodity Markets, Economic Growth and Development ISBN 978-92-1-112907-6 UNITED NATIONS Layout and Printing at United Nations, Geneva – 1733300 (E) – December 2017 – 2,398 – UNCTAD/SUC/2017/1 UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS Commodities and Development Report 2017 Commodity Markets, Economic Growth and Development New York and Geneva, 2017 ii Commodities and Development Report 2017: Commodity Markets, Economic Growth and Development Copyright © 2017, United Nations and Food and Agriculture Organization of the United Nations All rights reserved worldwide The findings, interpretations and conclusions expressed herein are those of the authors and do not necessarily reflect the views of the United Nations or the Food and Agriculture Organization of the United Nations or their officials or Member States. The designations employed and the presentation of material on any map in this work do not imply the expression of any opinion whatsoever on the part of the United Nations or the Food and Agriculture Organization of the United Nations concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. This publication has been edited externally. Requests to reproduce excerpts or to photocopy should be addressed to the Copyright Clearance Center at copyright.com. All other queries on rights and licences, including subsidiary rights, should be addressed to: United Nations Publications, 300 East 42nd St.
    [Show full text]
  • Chapter 6. Productivity Technology, Demand and Employment Trade Offs
    CHAPTER 6 Productivity: Technology, Demand, and Employment Trade-Offs Lasting per capita income growth and poverty reduction depend on sustained growth in labor productivity, which is driven by technological progress, often embedded in new investment, capital deepening, and structural change. The productivity growth slowdown over the past decade reflects weakening in all these drivers. The consequences of the COVID-19 pandemic including the current deep recession, suggest negative repercussions for labor productivity. However, COVID-19 could catalyze rapid technological innovation and structural change. Nonetheless, the resulting income gains might not be equitably distributed, partly because of the possible effects of innovation on employment. Following technological improvements during 1980-2018, employment declined in 70 percent of emerging market and developing economies (EMDEs) and 90 percent of advanced economies. The largest negative effects occurred in economies where employment was concentrated in industry, which tends to be more amenable to labor-saving innovation than other sectors. Cyclical fluctuations in activity can also have persistent effects on productivity, particularly in countries with weak fiscal positions. These findings indicate the importance of retraining programs and effective social safety nets to lower transition costs for workers displaced by technology advancements, as well as the strengthening of fiscal positions to ensure adequate space for stabilization policy. Introduction Productivity growth in advanced economies and emerging market and developing economies (EMDEs) has undergone many surges and declines in recent decades, usually coinciding with economic upswings and slowdowns respectively. In the four largest surges since 1980, annual labor productivity growth in EMDEs rose by at least 3 percentage points, and it fell by nearly 2 percentage points in the subsequent slowdowns (Figure 6.1).
    [Show full text]
  • Exogenous Shocks and Political Unrest
    University of Central Florida STARS Electronic Theses and Dissertations, 2004-2019 2019 Exogenous Shocks and Political Unrest Didara Nurmanova University of Central Florida, [email protected] Part of the Defense and Security Studies Commons Find similar works at: https://stars.library.ucf.edu/etd University of Central Florida Libraries http://library.ucf.edu This Doctoral Dissertation (Open Access) is brought to you for free and open access by STARS. It has been accepted for inclusion in Electronic Theses and Dissertations, 2004-2019 by an authorized administrator of STARS. For more information, please contact [email protected]. STARS Citation Nurmanova, Didara, "Exogenous Shocks and Political Unrest" (2019). Electronic Theses and Dissertations, 2004-2019. 6355. https://stars.library.ucf.edu/etd/6355 EXOGENOUS SHOCKS AND POLITICAL UNREST by DIDARA NURMANOVA M.I.A. Columbia University, 2003 A dissertation submitted in partial fulfillment of the requirements for the degree of Doctor of Philosophy in the Department of Political Science in the College of Sciences at the University of Central Florida Orlando, Florida Spring Term 2019 Major Professor: Güneş Murat Tezcür ©2019 Didara Nurmanova ii ABSTRACT This dissertation explores the role of exogenous shocks such as economic shocks and natural disasters in producing political unrest in the form of anti-government protests and ethnic riots. It is integrated by three articles, each covering a different topic. The first article argues that economic shocks play a crucial role in protest mobilization in rentier states conditional on weaker repressive capacity or higher taxation. Empirically, it conducts a cross-national study of high-resource dependent states in the period of 1995-2014.
    [Show full text]
  • Finance and Economics Discussion Series Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board, Washington, D.C
    Finance and Economics Discussion Series Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board, Washington, D.C. Branching Networks and Geographic Contagion of Commodity Price Shocks Teng Wang 2020-034 Please cite this paper as: Wang, Teng (2020). "Branching Networks and Geographic Contagion of Commodity Price Shocks," Finance and Economics Discussion Series 2020-034. Washington: Board of Gover- nors of the Federal Reserve System, https://doi.org/10.17016/FEDS.2020.034. NOTE: Staff working papers in the Finance and Economics Discussion Series (FEDS) are preliminary materials circulated to stimulate discussion and critical comment. The analysis and conclusions set forth are those of the authors and do not indicate concurrence by other members of the research staff or the Board of Governors. References in publications to the Finance and Economics Discussion Series (other than acknowledgement) should be cleared with the author(s) to protect the tentative character of these papers. Branching Networks and Geographic Contagion of Commodity Price Shocks Teng Wang1 Federal Reserve Board Abstract This paper studies the role of banks’ branching networks in propagating the oil shocks. Banks that were exposed to the oil shocks through their operations in oil-concentrated counties experienced a liquidity drainage in the form of a declining amount of demand deposit inflow as well as an increasing percentage of troubled loans. Banks were forced to sell liquid assets, and contracted lending to small businesses and mortgage borrowers in counties that were not directly affected by the oil shocks. The effect is magnified when banks do not have strong community ties, but is mitigated if banks’ branching network is sufficiently dispersed.
    [Show full text]
  • Commodity-Price Comovement and Global Economic Activity
    NBER WORKING PAPER SERIES COMMODITY-PRICE COMOVEMENT AND GLOBAL ECONOMIC ACTIVITY Ron Alquist Olivier Coibion Working Paper 20003 http://www.nber.org/papers/w20003 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 March 2014 The authors are grateful to Yuriy Gorodnichenko, Olivier Blanchard, John Bluedorn, Zeno Enders, Julian di Giovanni, Lutz Kilian, Serena Ng, Benjamin Wong, and seminar participants at the Bank of France, the Bundesbank, the Board of Governors, the Centre for Applied Macro and Petroleum Economics conference “Oil and Macroeconomics,” the European Central Bank, the Norges Bank, the Toulouse School of Economics, and UC Irvine for helpful comments. Data for this project were kindly provided by Christiane Baumeister, Lutz Kilian and the trade associations of the aluminum (EEA), copper (ICSG), tin (ITRI), and nickel (INSG) industries. The first draft of this paper was written while Coibion was a visiting scholar at the IMF, whose support was greatly appreciated. The paper was previously distributed under the title “Commodity Price Comovement: Sources and Implications.” The views expressed in the paper are those of the authors and should not be interpreted as reflecting the views of the Bank of Canada, its Governing Council, the International Monetary Fund, the National Bureau of Economic Research, or any other institution with which the authors are or have been affiliated. NBER working papers are circulated for discussion and comment purposes. They have not been peer- reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2014 by Ron Alquist and Olivier Coibion. All rights reserved.
    [Show full text]
  • Commodity Price Movements and Banking Crises, WP/18/153
    WP/18/153 Commodity Price Movements and Banking Crises by Markus Eberhardt and Andrea Presbitero IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management. © 2018 International Monetary Fund WP/18/153 IMF Working Paper Research Department Commodity Price Movements and Banking Crises1 Prepared by Markus Eberhardt, Andrea Presbitero Authorized for distribution by Maria Soledad Martinez Peria June 2018 IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management. Abstract We develop an empirical model to predict banking crises in a sample of 60 low-income countries (LICs) over the 1981-2015 period. Given the recent emergence of financial sector stress associated with low commodity prices in several LICs, we assign price movements in primary commodities a key role in our model. Accounting for changes in commodity prices significantly increases the predictive power of the model. The commodity price effect is economically substantial and robust to the inclusion of a wide array of potential drivers of banking crises. We confirm that net capital inflows increase the likelihood of a crisis; however, in contrast to recent findings for advanced and emerging economies, credit growth and capital flow surges play no significant role in predicting banking crises in LICs.
    [Show full text]
  • Nber Working Paper Series Commodity Booms and Busts
    NBER WORKING PAPER SERIES COMMODITY BOOMS AND BUSTS IN EMERGING ECONOMIES Thomas Drechsel Silvana Tenreyro Working Paper 23716 http://www.nber.org/papers/w23716 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 August 2017 We would like to thank Juan Antolin-Diaz, Neele Balke, Alberto Cavallo, Gianluca Benigno, Francesco Caselli, Wouter Den Haan, Martin Ellison, Andrea Fererro, Per Krusell, Tommaso Monacelli, Ivan Petrella, Ricardo Reis, and seminar participants at the NBER International Seminar on Macroeconomics 2017, the Workshop in International Economics at Oxford University, and LSE for useful comments and conversations. For superb research assistace, we would like to thank Piero Fortino and Sun Rui. Tenreyro acknowledges support from ERC Consolidator Grant MACROTRADE-Research on Macroeconomic Fluctuations and Trade. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2017 by Thomas Drechsel and Silvana Tenreyro. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. Commodity Booms and Busts in Emerging Economies Thomas Drechsel and Silvana Tenreyro NBER Working Paper No. 23716 August 2017 JEL No. E13,E32,F41,F43,O11,O16 ABSTRACT Emerging economies, particularly those dependent on commodity exports, are prone to highly disruptive economic cycles. This paper proposes a small open economy model for a net commodity exporter to quantitatively study the triggers of these cycles.
    [Show full text]