Commodity Cycles and Financial Instability in Emerging Economies
59 Pages Posted: 11 Dec 2019
Date Written: November 22, 2019
Commodity-exporting economies display procyclicality with the price of commodity exports. However, the evidence for the relative importance of commodity price shocks for aggregate fluctuations remains inconclusive. Using Russian data from 2001-2018 we estimate a small open economy New Keynesian model with a banking system and leveraged domestic firms who default on their unsecured domestic debt. Default rates vary endogenously over the business cycle and amplify the estimated contribution of commodity price shocks. As the effect of macroprudential policies depends on the type of the shock, optimal combinations of policy tools depend on the estimated relative importance of shocks.
Keywords: Business cycles, Small open economy, Emerging markets, Commodity prices, Financial Stability, Macroprudential policy
JEL Classification: F34, G15, G18
Suggested Citation: Suggested Citation