IMF Working Papers

Countries facing commodity (net) export price shocks tend to implement fiscal rules and to financially close their economies, demonstrating “macroeconomic prudence”. These effects are (unsurprisingly) 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. These findings remain robust across various checks, including different estimators and additional control and dependent variables. These findings suggest that macroeconomic institutions are reactive to terms of trade shocks stemming from commodity price fluctuations.