Unveiling the Dance of Commodity Prices and the Global Financial Cycle

April 5, 2024

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Format: Chicago

Luciana Juvenal, and Ivan Petrella. Unveiling the Dance of Commodity Prices and the Global Financial Cycle, (USA: International Monetary Fund, 2024) accessed November 21, 2024

Disclaimer: 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.

Summary

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.

Subject: Balance of payments, Capital flows, Commodity price fluctuations, Commodity price shocks, Commodity prices, Export prices, Prices

Keywords: Capital flows, Commodity c, Commodity channel, Commodity event, Commodity export, Commodity price fluctuations, Commodity price instrument, Commodity price shocks, Commodity prices, Commodity prices to a BAA, Commodity prices to shock, Energy commodity, Export prices, Fluctuations in commodity price, Global, Impact of commodity price fluctuation, Interaction term, Monetary policy shock, Risk appetite

Publication Details

Pages:

61
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2024/082
Stock No:

WPIEA2024082
ISBN:

9798400271618
ISSN:

1018-5941

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