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Commodity price shocks and macroeconomic dynamics

Author

Listed:
  • Ruthira Naraidoo

    (University of Pretoria)

  • Juan Paez-Farrell

    (Department of Economics, University of Sheffield, UK)

Abstract

We analyse the transmission mechanism of commodity price shocks in emerging economies. Using a panel vector autoregression, we find that the shock leads to a real exchange rate appreciation, increases in output, inflation the nominal interest rate and the trade balance, and a fall in the unemployment rate. The transmission mechanism can be understood using a dynamic stochastic general equilibrium model of a small commodity-exporting open economy with nominal as well as search and matching frictions. We find that the conduct of monetary policy is key to both the variables’ dynamics as well as to the magnitude of Dutch disease effects.

Suggested Citation

  • Ruthira Naraidoo & Juan Paez-Farrell, 2022. "Commodity price shocks and macroeconomic dynamics," Working Papers 2022008, The University of Sheffield, Department of Economics.
    • Handle: RePEc:shf:wpaper:2022008
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    File URL: https://www.sheffield.ac.uk/economics/research/serps
    File Function: First version, May 2022
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    More about this item

    Keywords

    Commodity prices; emerging markets; inflation; monetary policy; search and matching; unemployment; Dutch disease; DSGE modelling;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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