Commodity Price Shocks and Financial Sector Fragility

49 Pages Posted: 28 Mar 2016

See all articles by Tidiane Kinda

Tidiane Kinda

International Monetary Fund (IMF)

Montfort Mlachila

International Monetary Fund (IMF)

Rasmane Ouedraogo

Université d'Auvergne - Clermont 1, Centre d'Etudes et de Recherches sur le Developpement International (CERDI), Students

Date Written: February 2016

Abstract

This paper investigates the impact of commodity price shocks on financial sector fragility. Using a large sample of 71 commodity exporters among emerging and developing economies, it shows that negative shocks to commodity prices tend to weaken the financial sector, with larger shocks having more pronounced impacts. More specifically, negative commodity price shocks are associated with higher non-performing loans, bank costs and banking crises, while they reduce bank profits, liquidity, and provisions to nonperforming loans. These adverse effects tend to occur in countries with poor quality of governance, weak fiscal space, as well as those that do not have a sovereign wealth fund, do not implement macro-prudential policies and do not have a diversified export base. These findings are robust to a battery of robustness checks.

Keywords: financial sector fragility, commodity, price, commodity price, prices, financial sector, General, Financial Markets and the Macroeconomy, Government Policy and Regulation, All Countries, financial sector fragility.,

JEL Classification: E30, E44, G38

Suggested Citation

Kinda, Tidiane and Mlachila, Montfort and Ouedraogo, Rasmane, Commodity Price Shocks and Financial Sector Fragility (February 2016). IMF Working Paper No. 16/12, Available at SSRN: https://ssrn.com/abstract=2754917

Tidiane Kinda (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Montfort Mlachila

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Rasmane Ouedraogo

Université d'Auvergne - Clermont 1, Centre d'Etudes et de Recherches sur le Developpement International (CERDI), Students ( email )

65 Boulevard Francois Mitterrand
63000 Clermont-Ferrand Cedex 1
France

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