Commodity Price Volatility, Fiscal Balance and Real Interest Rate

38 Pages Posted: 3 Sep 2020

See all articles by Monoj Kumar Majumder

Monoj Kumar Majumder

Sher-e-Bangla Agricultural University

Mala Raghavan

University of Tasmania

Joaquin Vespignani

University of Tasmania - School of Economics and Finance

Date Written: September 1, 2020

Abstract

The objective of this study is to explore the impact of commodity price volatility on the governments’ fiscal balance. Using a dynamic panel data model for 108 countries from 1993 to 2018, this study finds that governments’ fiscal balance deteriorates with commodity price volatility. A one standard deviation increase in commodity price volatility leads to a reduction of approximately 0.04 units in the fiscal balance as a percentage of gross domestic product. In addition, we examine the role of real interest rates in influencing the relationship between commodity price volatility and fiscal balance. The empirical results suggest that the negative impact of commodity price volatility on fiscal balance can be mitigated with lower real interest rate.

Keywords: Commodity prices, commodity price volatility, fiscal balance, real interest rate

JEL Classification: E58, E62, G01

Suggested Citation

Majumder, Monoj Kumar and Raghavan, Mala and Vespignani, Joaquin, Commodity Price Volatility, Fiscal Balance and Real Interest Rate (September 1, 2020). CAMA Working Paper No. 79/2020, Available at SSRN: https://ssrn.com/abstract=3684200 or http://dx.doi.org/10.2139/ssrn.3684200

Monoj Kumar Majumder

Sher-e-Bangla Agricultural University ( email )

Sher-e-Bangla Nagor
Dhaka, 1207
Bangladesh

Mala Raghavan

University of Tasmania ( email )

French Street
Sandy Bay
Tasmania, 7250
Australia

Joaquin Vespignani (Contact Author)

University of Tasmania - School of Economics and Finance ( email )

Commerce Building,
Sandy Bay Campus
Sandy Bay, TAS, Tasmania 7005
Australia

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