Shocks and Shields: Macroeconomic Institutions During Commodity Price Swings
IMF Working Papers, January 17, 2025
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- Shocks and Shields: Macroeconomic Institutions During Commodity Price Swings
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Bibliographic details
- Authors: Rabah Arezki, Patrick A. Imam, Kangni R Kpodar, Dao Le-Van
- Published: January 17, 2025
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400296710.001
Summary and key findings
- Countries facing commodity (net) export price shocks tend to implement fiscal rules and to financially close their economies, demonstrating “macroeconomic prudence”.
- The effects are asymmetric between import and export price shocks.
- The impact of commodity (net) export prices on macroeconomic institutions is influenced by the intensity of shocks and income levels of the countries, with higher-income countries driving the main results.
- The findings remain robust across various checks, including different estimators and additional control and dependent variables.
- Overall conclusion: macroeconomic institutions are reactive to terms of trade shocks stemming from commodity price fluctuations.
Research scope and subjects
- Subject: Commodity price shocks, Commodity prices, Exchange rate arrangements, Export prices, Fiscal policy, Fiscal rules, Foreign exchange, Prices
- Keywords: commodity export, commodity export windfall, Commodity price shocks, Commodity prices, commodity terms of trade shock, Exchange rate arrangements, Export prices, Fiscal rules, Global, impact of commodity, macroeconomic institutions, natural resources, price shock, resource curse
Methodology and robustness (as reported)
- Empirical analysis linking commodity (net) export price shocks to institutional responses (fiscal rules, financial closure).
- Robustness checks included different estimators and additional control and dependent variables.
- Examination of heterogeneity by intensity of shocks and by country income level; higher-income countries account for the main effects.
Policy implications
- Commodity price swings (terms of trade shocks) elicit institutional responses that increase macroeconomic prudence, notably by:
- Implementing fiscal rules.
- Financially closing economies (tighter foreign exchange/financial openness posture).
- Policymakers in commodity-exposed countries should consider how institutional settings (fiscal rules, exchange rate and financial openness) can be used as shields against volatile commodity-driven terms of trade shocks.
- The asymmetric response to import versus export price shocks implies policy design should account for the direction of commodity price movements.
IMF Working Paper by Rabah Arezki, Patrick A. Imam, Kangni R Kpodar, and Dao Le-Van, January 17, 2025.
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