The Dynamic Effects of Commodity Prices on Fiscal Performance in Latin America
IMF Working Papers, August 1, 2010
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Bibliographic details
- Authors: Leandro Medina
- Published: August 1, 2010
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781455202263.001
Overview
- Research question: impact of volatile commodity prices on Latin American countries’ fiscal positions during recent boom and bust cycles.
- Scope: analysis covers eight commodity-exporting Latin American countries.
- Core contribution: uses a novel quarterly data set that includes unique country-specific commodity price indices and a comprehensive measure of public expenditures.
Methodology and data
- Data frequency: quarterly.
- Novel elements: country-specific commodity price indices; comprehensive measure of public expenditures.
- Analytical focus: dynamic effects of commodity price fluctuations on fiscal revenues and expenditures.
Key findings
- Overall sensitivity:
- Latin American countries’ fiscal positions react strongly to shocks to commodity prices.
- There are marked differences across countries in fiscal responses to commodity price shocks.
- Country-specific responses:
- Venezuela: fiscal variables display the highest sensitivity to commodity price shocks, with expenditures reacting significantly more than revenues.
- Chile: expenditure reacts very little to commodity price fluctuations; dynamic responses of its fiscal indicators are very similar to those seen in high-income commodity-exporting countries.
- Institutional links:
- Distinct behavior across countries may relate to institutional arrangements, which in some cases include the efficient application of fiscal rules amid political commitment and high standards of transparency.
Implications and policy considerations
- Fiscal vulnerability: commodity-exporting countries face pronounced fiscal volatility tied to commodity price shocks.
- Role of institutions: effective fiscal rules, political commitment, and transparency can mitigate the fiscal impact of commodity price fluctuations.
- Policy emphasis: strengthen institutional arrangements and fiscal frameworks to reduce expenditure sensitivity and improve revenue management during commodity price cycles.
The Dynamic Effects of Commodity Prices on Fiscal Performance in Latin America — Leandro Medina, IMF Working Paper No. 2010/192, August 1, 2010. Pages: 27. Volume: 2010. Issue: 192. DOI: https://doi.org/10.5089/9781455202263.001. Stock No: WPIEA2010192. ISBN: 9781455202263. ISSN: 1018-5941.