Commodity-exporting Countries Research Articles

Portfolio balance effect of the U.S. QE between commodities and financial assets in commodity-exporting countries

This study analyses the portfolio balance channel of the U.S. quantitative easing (QE) by assessing the dynamic spillover effect between commodities and financial assets in commodity-exporting countries during QE. This study integrates the generalized spillover index initially proposed by Diebold and Yilmaz (2012) for the fractional integration VAR model. Then, we estimate the multivariate framework of the Westerlund and Narayan (2015) (WN)-based predictive model to quantify the effect of the portfolio balance channel on the net pairwise spillover index from the U.S. to other countries. Our results show: first, for bond yields, that Asian and Pacific bond yields are impacted by both commodity price indices returns and the U.S. bond yields across the sample periods. However, mixed evidence is found for both Latin America and Others; second, for equity, dynamic net return spillovers contribute mixed evidence across regional groups during QE. The diverse results are partly explained by the average percentage of commodity exports to total exports of the country and the degree of close interrelationship between countries. Additionally, dynamic return spillover analyses show that most foreign exchange returns are negative net spillovers during QE, supporting the behavior of “commodity currencies.” Last, the WN-based predictability models show pronounced differences in predictability across the selected commodity-exporting countries.

Fiscal Consolidations in Commodity-Exporting Countries: A DSGE Perspective

Fiscal Consolidations in Commodity-Exporting Countries: A DSGE Perspective

The Liquidity Effect of the U.S. QE on Sovereign Yield Spreads of Commodity-Exporting Countries

This paper investigates the liquidity effect of the U.S. QE on the sovereign yield spreads of commodity-exporting countries by employing the two-stage least squares approach. The key contributions of the paper are in terms of our empirical findings. First, our results show that the U.S. QE has an economically and statistically significant liquidity effect in terms of both the HPW illiquidity measure and the TIPS liquidity premium. This is of policy importance because adjusting for the liquidity premium is a key stage in modeling inflationary expectations. Second, our results show that the U.S. QE reduced the liquidity premium with improved market liquidity and hence reduce sovereign yield spreads of most commodity-exporting countries. This finding is of macroeconomic importance as reduced sovereign yield spreads have been shown to lead to higher real activity and higher credit activity.

Does commodity price volatility harm financial development? Evidence from developing commodity exporting countries*

This paper examines the effect of commodity price volatility on financial development in primary commodity-exporting countries. For this purpose, we collected data on 73 developing countries that are primary commodities exporters, from 2000 to 2018 and employed a two-step GMM methodology in dynamic panel data. Our results show evidence that commodity price booms promote financial development, and the volatility in commodity price negatively affects the path of financial development in developing countries. Our findings also suggest that markets are the main channel through which the volatility in commodity prices affects financial development. We then conclude that volatility in commodity prices is the main reason for the resource curse in the financial sector and not the resource abundance.

Fiscal Procyclicality in Commodity Exporting Countries: How Much Does it Pour and Why?

Fiscal Procyclicality in Commodity Exporting Countries: How Much Does it Pour and Why?

Using Tools to Regulate the Transition to a Green Economy and Preserve the Environment for Countries Exporting Raw Materials

This article considers the tools that form the organizational and financial basis for the green economy transition and the features of their application. Currently, most countries of the world have taken a course towards the green economy transition to ensure a decent life for society while preserving the environment. The study aims at seeking the most effective tools for managing such a transition in a certain order and on time. The article dwells on the state regulation of environmentally oriented industries and support for green investments, as well as social orientation towards the environment. A special emphasis is laid on market-based instruments for financing the development of the green economy, including green bonds. The authors of the article have presented a model of transition to green growth with minimum losses for commodity-exporting countries using special financial instruments that ensure the green economy transition for enterprises in the fuel and energy complex. They also have formed proposals for improving the regulatory potential of environmental legislation and the main objects influenced by the state environmental policy.

Commodity price effects on currencies

Using quarterly data on four commodity-exporting countries, we examine the explanatory power of real commodity prices to predict real effective exchange rates, paying particular attention to the separate roles of varied sectoral commodity prices during alternative time periods. We determine that the commodity price effect is nonuniform across countries and commodity sectors and varies over time. The use of fixed-weight price indexes or nominal exchange rates and commodity prices yields heterogeneous commodity price effects. Furthermore, the pattern of commodity price effects is influenced by the presence of macroeconomic conditions, effects of crises, and exchange rates of leading trading partners. These empirical results highlight the challenges associated with explaining diverse currency behaviors across different time periods using a single commodity-price-based exchange rate model. In addition, these findings suggest policymaking assuming stable commodity price effects difficult.

Currency and commodity return relationship under extreme geopolitical risks: evidence from the invasion of Ukraine

ABSTRACTWe examine the relationship between currency and commodity returns around the invasion of Ukraine in February 2022. We find that the expected positive contemporaneous relationship between currency and commodity returns reverses and becomes negative during this period of extreme geopolitical risks. In addition to commodity returns, currency returns around the invasion of Ukraine are significantly affected by geopolitical factors, particularly geographic distance to the war. Our results indicate that a war between two major commodity-exporting countries significantly affects global currency pricing.

The Effect of Foreign Competition on Related Diversification and Performance

This study examines whether foreign competition affects related diversification. To obtain exogenous variation in product market competition, I exploit a quasi-natural experiment provided by large currency appreciation that occurred between 2005 and 2010 in the manufacturing sector of commodity-exporting countries. This paper examines the impact of a significant real appreciation of the Colombian Peso in the 2000s at the product-firm level. A currency appreciation shock affects a firm through two different channels: (1) Firms adjust their product portfolio by reducing sales and dropping products affected by an appreciation shock; (2) firms are more likely to add products when they have higher levels of relatedness to the core products under competitive pressure. These findings provide the first evidence on how foreign competition affect corporate diversification at the product level.

FACTORS IN THE FORMATION OF SUPER-CYCLES IN WORLD COMMODITY MARKETS

Over the past few years, the world’s leading commodity markets have seen an upward trend in prices, which may indicate the beginning of a new super-cycle or may be of a short-term nature, driven by current changes in demand and supply. Commodity super-cycles are important for the global economy, especially for macroeconomic policies in commodity-exporting countries, and are also reflected in the dynamics of international financial markets. The purpose of the article is to determine the essence and features of super-cycles in world commodity markets as well as to identify the factors that led to the increase in commodity prices in 2020-2022. To solve the objectives set in the article, a number of general scientific and special methods of scientific cognition are used, namely the method of theoretical generalization, historical and logical methods, descriptive-analytical method, analysis and synthesis, induction and deduction, abstractlogical method and method of economic-statistical analysis. The article outlines the mechanism of deployment of the conjunctural cycle in commodity markets and its connection with long cycles of business activity, which are conditioned by the implementation of revolutionary technological innovations. It discusses the dynamics of the main composite commodity indices. The factors influencing the growth of prices for commodity assets at the micro and macro levels are identified. The article traces changes in the course of commodity super-cycles during the 20th and early 21st centuries and investigates their causes. It is revealed that global inflationary processes, the dynamics of the US dollar index as well as the disruption of supply chains in international trade due to the COVID-19 pandemic had a significant impact on the global growth of commodity prices in 2020-2022. At the same time, forecasts about the recession of the global economy caused by the large-scale military aggression of russia in Ukraine and the long-term consequences of the pandemic as well as macroeconomic policies of large economies aimed at overcoming excessive inflation may somewhat cool the prices of commodity assets. To assess the sentiments and expectations of economic entities, the dynamics of the basis for WTI oil is analyzed, which gives grounds to conclude that the price fluctuations in global commodity markets in 2020-2022 are short-term in nature as well as to question the beginning of a new super-cycle. Identification and forecasts of conjunctural fluctuations in global commodity markets are important without any exaggeration for all economic entities – both for producers in making strategic as well as tactical management decisions on the development of production and in the formation of structural and macroeconomic policies of the country in order to increase the export potential of the national economy and to ensure its competitiveness.

Macroeconomic effects of fiscal rules for a commodity-exporting economy: avoiding procyclical bias in Kazakhstan

ABSTRACT This paper investigates the macroeconomic consequences of an alternative fiscal rule in the context of commodity price shocks for a commodity-exporting country. We build a DSGE model to explain the business cycle in an oil-exporting economy, estimated using macroeconomic data from Kazakhstan. Our results demonstrate that when fiscal policy is procyclical in response to a transitory negative oil price shock, and if a majority of households are non-Ricardian, then a one standard deviation drop in oil prices causes an output decline of about 0.19%. In contrast, if the fiscal policy is countercyclical and conducted according to the structural balance fiscal rule, output increases by about 0.13% in response to the same shock. We also report that countercyclical fiscal policy is robustly effective when the monetary policy is characterized by its active inflation stabilization framework.

The Macroeconomic Results of Diligent Resource Revenues Management: The Norwegian Case

Many commodity-exporting countries saw their revenues plummet and experienced fiscal deficits during the pandemic. The economic rebound will restore resource exports/revenues and a new round of debate will be initiated on revenues utilization. Countries will decide either to internalize revenues or capitalize them with investments abroad. Our autoregressive distributed lag (ARDL) models provide evidence of the benefits Norway enjoys since it has not internalized revenues. The currency rate, long-term bond yields, and GDP growth are insulated from prices volatility. Furthermore, the country can absorb currency appreciations/devaluations and long-term credit rate hikes through government expenditure. However, monetary steering is favored in the long term (absorbs yield increases), while in the short run it can allow for speculative activities by credit investors. Countries should not internalize resource revenues to avoid experiencing decreased competitiveness and economic growth and increased credit rates. However, the temptation will be high enough since deficits and support packages cost a lot. This study also includes years of low prices. Thus, our research reveals the extent and limitations of diligent revenue management from a country considered as a role model.

External Adjustment in Commodity Exporting Countries During Energy Price Downturns

External Adjustment in Commodity Exporting Countries During Energy Price Downturns

A Balance-of-Payments-Constrained Growth Model for a Small Commodity Exporting Country: Argentina Between 1971 and 2016

ABSTRACT We study the balance of payments (BOP) as a constraint on economic growth, focusing on Argentina’s economy between 1971 and 2016. The data show that Thirlwall’s balance-of-payments-constrained growth model cannot explain Argentina’s average growth during this period, which witnessed high growth in the terms of trade. We expand Thirlwall’s model based on recent empirical indications that exporters set their prices in foreign currencies. Thus, we show new ways in which the terms of trade and real exchange rate impact the growth rate compatible with the BOP equilibrium. While prices affect the growth rate compatible with the BOP equilibrium mainly through changes in the original model’s quantities, the proposed extension finds a stronger direct effect of the terms of trade. Through the extended model, we find that the weak and strong tests of Thirlwall’s Law are not rejected. Further, we show the consistency of the results regardless of the assumed country size or presence of structural economic breaks. Consequently, we argue that prior literature was inconclusive for Argentina as it did not consider invoicing of international trade in foreign currency, thus disregarding the full effect of the terms of trade and real exchange rate on growth compatible with the BOP equilibrium.

Impact of commodity price volatility on external debt: the role of exchange rate regimes

ABSTRACT This study explores the impact of commodity price volatility on external debt accumulation under fixed, managed, and floating exchange rate regimes. We estimate dynamic panel data models for 97 countries from 1993 to 2016. Our empirical findings show that commodity price volatility increases external debt accumulation for commodity-exporting countries. This impact is three-times higher for countries with fixed exchange rate regimes compared to managed floating exchange rate regimes. Under floating exchange regimes, the effect of commodity price volatility on external debt is statistically insignificant. Our results suggest that the adoption of a floating exchange rate regime by commodity-exporting countries is critical to mitigate the effects of commodity price volatility on external debt accumulation.

Commodities and monetary policy: Implications for inflation and price level targeting

We examine the relative ability of inflation targeting and price level targeting monetary policy rules to minimize inflation variability and business cycle fluctuations in a commodity-exporting country for supply and demand shocks to global commodity markets. The macroeconomic consequences of oil and non-oil primary commodities differ and affect the relative merits of the alternative monetary policy frameworks. Particularly, the consumption of refined oil products and demand-driven commodity price movements induce highly persistent inflation pressures resulting in a significant deterioration of the inflation-output gap trade-off available to central banks. When such terms-of-trade shocks are prevalent, price level targeting is inferior to inflation targeting.

IN- AND OUT-OF-SAMPLE PERFORMANCE OF NONLINEAR MODELS IN INTERNATIONAL PRICE DIFFERENTIAL FORECASTING IN A COMMODITY COUNTRY FRAMEWORK

This paper presents an analysis of a group of small commodity-exporting countries' price differentials relative to the US dollar. Using unrestricted self-exciting threshold autoregressive models (SETAR), we evaluate the sixteen national Consumer Price Indexes (CPI) differentials relative to the US dollar CPI. Out-of-sample forecast accuracy is estimated through calculation of mean absolute errors measures based on the monthly rolling window and recursive forecasts, and this estimation is extended to three additional models, namely a logistic smooth transition regression (LSTAR), an additive nonlinear autoregressive model (AAR), and a simple neural network model (NNET). Our preliminary results confirm the presence of some form of nonlinearity in most of the analyzed countries. The parsimonious AR(1) model does not appear to perform any worse than any nonlinear model in the rolling sample exercise. However, in terms of a longrun equilibrium driven by purchasing power parity, its validity is undermined by the results of the recursive estimates and the outcome of the Diebold-Mariano type tests, which favor generally the Heckscher commodity points theory. As a policy advice to commodity-exporting countries, we find no apparent reason to suggest commodity export price pegging as a generalized foreign exchange policy.

Commodity terms of trade shocks and real effective exchange rate dynamics in Africa's commodity-exporting countries

Motivated by the absence of conclusive guidance from the current literature, this study revisits the effects of terms of trade shocks on real effective exchange rates (RER) across twenty-three primary commodity-exporting countries in Africa. To address the heterogeneity across primary commodities that may have plagued earlier studies, we employed a nonlinear panel ARDL approach to capture both the cross-section and time variations across primary commodities. Our analysis offers three main finding patterns. Firstly, we highlighted that the response of the RER to terms of trade shocks is asymmetric: the real appreciation is more pronounced for positive than negative shocks in terms of trade in the long-run while negative shocks in terms of trade cause the RER to depreciate in the short-run. Secondly, we found that the asymmetric responses of RER differ across commodity subgroups and seem to matter more for energy-exporting countries. Finally, we showed that energy and metal commodity-exporting subgroups are the most subject to real appreciation in the long run in comparison to countries exporting soft commodities such as agricultural and, food and beverage commodities. A fundamental policy corollary follows that there is a need to remediate the loss of the external competitiveness associated with real appreciation by coordinating monetary and fiscal policies to effectively absorb the huge additional foreign reserves and ensure an exchange rate equilibrium level, which will bring macroeconomic stability in primary commodity-exporting countries.

Recovery from financial crises in peripheral economies, 1870–1913

What drives recoveries after financial crises? I address this question for the 1870–1913 “first era of globalization,” focusing on whether trade policy changes or positive movements in commodity prices played a bigger role in stimulating output growth after financial crises in peripheral economies. At this time before governments had modern fiscal and monetary policy tools to use while responding to crises protectionism was one of the few national-level policy options available for shaping economic activity. Improving terms of trade is another major factor that could influence output growth in the commodity-exporting countries included in this analysis. While previous studies of this period have looked at longer-run associations between these explanatory variables and economic growth, I focus on the aftermath of crises, and find that tariff rate increases had a positive impact on GDP per capita growth, while positive terms of trade changes did not have a significant effect on output growth. This suggests that governments played a substantial role in shaping post-crisis recoveries during this period.

Mongolian mineral export basket risk: A Portfolio theory approach

This paper explores one of the most prominent contemporary macroeconomic risks many commodity-exporting countries are facing today at the stage of their development and provides recommendations to reduce them. Uncertainty of mineral export commodities’ price fluctuations affect instability in export earnings and lead to fiscal and balance of payments deficits. However, for the country that depends on a basket of commodities, the volatility can be moderated if there is so-called a portfolio effect; that is if price fluctuations of such commodities offset with each other. In this paper, minerals are considered as risky assets to apply the Modern Portfolio Theory (MPT) and Mongolian mineral export basket is studied as a case study. In 2018, the export revenue share of Mongolian mineral export commodities has reached 87 per cent of total export. Especially during the last few years, coal, one of the most price volatile commodity, is dominating in its total export basket. As a result of this paper, there is a little room to improve the current export mix by adjusting the value weight of each commodity according to their contribution to overall portfolio risk and return.