Working Paper: CEPR ID: DP18437
Authors: Luciana Juvenal; Ivan Petrella
Abstract: We examine the impact of commodity price changes on the business cycles and capital flows in emerging markets and developing economies (EMDEs), distinguishing between their role as a source of shock and as a channel of transmission of global shocks. Our findings reveal that surges in export prices, triggered by commodity price shocks, boost domestic GDP, an effect further amplified by the endogenous decline of country spreads. However, the effects on capital flows appear muted. Shifts in U.S. monetary policy and global risk appetite drive the global financial cycle in EMDEs. Eased global credit conditions, attributed to looser U.S. monetary policy or lower global risk appetite, lead to a rise in export prices, higher output, a decrease in government borrowing costs, and stimulate greater capital flows. The endogenous response of export prices amplifies the output effects of a more accommodative U.S. monetary policy while country spreads magnify the impact of shifts in global risk appetite.
Keywords: Commodity Prices; Emerging Market and Developing Economies; Global Financial Cycle
JEL Codes: F41; F44; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Commodity price shocks (Q02) | Domestic GDP (E20) |
| Commodity price shocks (Q02) | EMBI spreads (F36) |
| Decline in EMBI spreads (F65) | Domestic GDP (E20) |
| Global demand shifts (F61) | Commodity prices (Q02) |
| Eased global credit conditions (F65) | Export prices (P22) |
| Eased global credit conditions (F65) | Domestic GDP (E20) |