Unveiling the Dance of Commodity Prices and the Global Financial Cycle
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Summary:
We examine the impact of commodity price changes on the business cycles and capital flows in emerging markets and developing economies (EMDEs), distinguishing between their role as a source of shock and as a channel of transmission of global shocks. Our findings reveal that surges in export prices, triggered by commodity price shocks, boost domestic GDP, an effect further amplified by the endogenous decline of country spreads. However, the effects on capital flows appear muted. Shifts in U.S. monetary policy and global risk appetite drive the global financial cycle in EMDEs. Eased global credit conditions, attributed to looser U.S. monetary policy or lower global risk appetite, lead to a rise in export prices, higher output, a decrease in government borrowing costs, and stimulate greater capital flows. The endogenous response of export prices amplifies the output effects of a more accommodative U.S. monetary policy while country spreads magnify the impact of shifts in global risk appetite.
Series:
Working Paper No. 2024/082
Subject:
Balance of payments Capital flows Commodity price fluctuations Commodity price shocks Commodity prices Export prices Prices
Frequency:
regular
English
Publication Date:
April 5, 2024
ISBN/ISSN:
9798400271618/1018-5941
Stock No:
WPIEA2024082
Format:
Paper
Pages:
61
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