Last updated: June 2007
Volume 54, Number 1
IMF Staff Papers

Commodity Price Shocks and the Odds on Fiscal Performance:
A Structural Vector Autoregression Approach

Francis Y. Kumah and John M. Matovu

Full Text of this Article (PDF 292K)

Abstract: Unanticipated changes in commodity prices can generate significant movements in fiscal aggregates. This paper seeks to understand the dynamics of these fiscal movements in the context of transitory commodity price shocks, using sample data from four countries of the Commonwealth of Independent States—two oilexporting and two non-oil-exporting commodity-intensive countries. It adopts a structural vector autoregression approach to identify dynamic effects of commodity price shocks on fiscal performance under two broad tax regimes. Stochastic simulations indicate high probabilities of fiscal overperformance in the short term when commodity prices are high. These probabilities deteriorate significantly, however, in the long run after the transitory positive commodity price shock has dissipated, particularly when lax fiscal policy is adopted during the period of the price boom. [JEL C50, E62, E66]