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Commodity price volatility, fiscal balance and real interest rate

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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.

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  • Majumder, Monoj Kumar & Raghavan, Mala & Vespignani, Joaquin, 2020. "Commodity price volatility, fiscal balance and real interest rate," Working Papers 2020-08, University of Tasmania, Tasmanian School of Business and Economics.
    • Handle: RePEc:tas:wpaper:34484
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    More about this item

    Keywords

    Commodity prices; commodity price volatility; fiscal balance; real interest rate;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • G01 - Financial Economics - - General - - - Financial Crises

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