Global Shocks and Emerging Economies: Disentangling the Commodity Roller

Abstract

Shocks in commodity prices are viewed as a major driver of emerging economies' business cycle. We show this is not the case for Brazil, Chile, Colombia, and Peru when a structural vector autoregressive model accounts for macrofinance linkages at world and domestic levels. The presence of a global financial variable modifies established results as it endogenously influences commodity prices. Global demand shocks have been the main external driver of the business cycle in Brazil, Chile, and Peru, while global economic uncertainty shocks have been the main international driver of the Colombian GDP.*A longer working paper version is available at https://econpapers.repec.org/paper/cdptexdis/td623 .htm under the title "Global shocks and emerging economies: disentangling the commodity roller coaster". We are grateful to Tao Zha and Daniel Waggoner (see Zha, 2000) for sharing their codes, and for the editor and the anonymous referee for their valuable suggestions. All errors are ours.

Understanding Global Commodity Price Shocks on Exchange Rates and Inflation in Emerging Economies: ARDL Perspective

“…Previous studies about global commodity price shocks and exchange rates in emerging economies include the need for further analysis of the specific impacts of different types of commodity price shocks on domestic financial markets [12]. Mauro [9] identified insufficient studies in understanding the role of global financial variables in influencing commodity prices and their subsequent effects on emerging economies' business cycles. This current study builds on the same notion in assessing the impact of global commodity prices on the Ghanaian economy, within the lens of its inflator factor and exchange rates.…”

“…According to the research by Shahrazi et al [7] there is mixed evidence regarding the relationship between global commodity prices and inflation. Some studies have found a positive and significant impact, while others have found no significant effect [9]. In addition, the role of macro-finance linkages and global financial variables in influencing commodity prices and their impact on inflation has not been fully explored [16].…”

“…These shocks can increase inflation rates, as seen in the case of Iran where global commodity prices were found to positively and significantly affect inflation [7]. The impact of globalization on inflation dynamics is also evident, with increased integration between developed economies and emerging countries leading to a direct impact on domestic inflation in emerging countries [8] Inflation in these countries can be influenced by disruptions in global trade channels, highlighting the structural nature of global inflation [9]. At the same time, commodity price shocks have been identified as major drivers of business cycles in emerging economies, such as Brazil, Chile, Colombia, and Peru [10].…”

“…Studies have shown that positive oil price shocks lead to devaluations in domestic currencies and tight monetary policies in some economies [12]. On the other hand, shocks in agricultural prices cause appreciations in domestic currencies [9].…”