Global Commodity Markets and Sovereign Risk across 150 Years
48 Pages Posted: 3 Mar 2023
Date Written: February 2023
How do commodity price movements affect sovereign default risk over the long-run? Using a novel dataset covering 41 countries and 42 raw commodities, we take a comprehensive long-run view to shed light on this so far understudied relationship between commodity risk and sovereign risk across 150 years. We create a novel country-specific commodity price index that allows us to take advantage of countries’ variation in their commodity export compositions. Our results are twofold: first, commodity price fluctuations show a persistent association with sovereign borrowing costs for countries that are commodity export dependent across the last one and a half centuries. Second, historically this relationship was driven by agricultural price movements; today it is driven by mineral and energy price movements.
Keywords: Sovereign Risk, commodity prices
JEL Classification: E44,F41,F3,H63,G12
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