Commodity Cycles and Financial Instability in Emerging Economies

59 Pages Posted: 11 Dec 2019

See all articles by Mikhail Andreev

Mikhail Andreev

Bank of Russia

Udara Peiris

National Research University Higher School of Economics - International College of Economics and Finance

Aleksandr Shirobokov

National Research University Higher School of Economics - Faculty of Economics

Dimitrios P. Tsomocos

University of Oxford - Said Business School and St. Edmund Hall

Date Written: November 22, 2019

Abstract

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

Andreev, Mikhail and Peiris, Udara and Shirobokov, Aleksandr and Tsomocos, Dimitrios P., Commodity Cycles and Financial Instability in Emerging Economies (November 22, 2019). Available at SSRN: https://ssrn.com/abstract=3491831 or http://dx.doi.org/10.2139/ssrn.3491831

Mikhail Andreev

Bank of Russia ( email )

Neglinnaya str. 12
Moscow
Russia

Udara Peiris (Contact Author)

National Research University Higher School of Economics - International College of Economics and Finance ( email )

Pokrovski Bulvar 11, Korpus Zh, Office 715
Moscow, 109028
Russia

Aleksandr Shirobokov

National Research University Higher School of Economics - Faculty of Economics ( email )

Shabolovka 26
Moscow, 119049
Russia

Dimitrios P. Tsomocos

University of Oxford - Said Business School and St. Edmund Hall ( email )

Park End Street
Oxford, OX1 1HP
Great Britain
+44 1865 288 932 (Phone)
+44 1865 288 805 (Fax)

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