Commodity Price Shocks and Financial Sector Fragility
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Summary:
This paper investigates the impact of commodity price shocks on financial sector fragility. Using a large sample of 71 commodity exporters among emerging and developing economies, it shows that negative shocks to commodity prices tend to weaken the financial sector, with larger shocks having more pronounced impacts. More specifically, negative commodity price shocks are associated with higher non-performing loans, bank costs and banking crises, while they reduce bank profits, liquidity, and provisions to nonperforming loans. These adverse effects tend to occur in countries with poor quality of governance, weak fiscal space, as well as those that do not have a sovereign wealth fund, do not implement macro-prudential policies and do not have a diversified export base. These findings are robust to a battery of robustness checks.
Series:
Working Paper No. 2016/012
Subject:
Banking crises Commodity price shocks Commodity prices Economic sectors Financial crises Financial institutions Financial sector Nonperforming loans Prices
English
Publication Date:
February 1, 2016
ISBN/ISSN:
9781498328722/1018-5941
Stock No:
WPIEA2016012
Pages:
48
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