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- Title
Commodity cycles and financial instability in emerging economies.
- Authors
Andreev, Mikhail; Peiris, M. Udara; Shirobokov, Alexander; Tsomocos, Dimitrios P.
- 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 to 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. We show that allowing default rates to vary endogenously over the business cycle amplifies the estimated contribution of commodity price shocks. Endogenous default introduces time-varying wedges that amplify the response of commodity price shocks through demand and income effects rather than the relative price effects that are found in the country risk-premium, balance sheet, and financial accelerator channels. We find that the contribution of commodity prices to explaining fluctuations in GDP rises from 2.5 to 33.6% while for deposits and non-performing loans, it increases from 5.3% and 1.6% to 71.3% and 60.4%, respectively.
- Subjects
PRICES; EMERGING markets; BUSINESS cycles; NONPERFORMING loans; POLITICAL risk (Foreign investments); FINANCIAL statements; PRICE fluctuations; FREE trade
- Publication
Annals of Finance, 2024, Vol 20, Issue 2, p167
- ISSN
1614-2446
- Publication type
Article
- DOI
10.1007/s10436-024-00443-8