IDEAS home Printed from https://ideas.repec.org/p/bcr/wpaper/201257.html
   My bibliography  Save this paper

Common Drivers in Emerging Market Spreads and Commodity Prices

Author

Listed:
  • Diego Bastourre

    (Central Bank of Argentina, Universidad Nacional de La Plata)

  • Jorge Carrera

    (Central Bank of Argentina, Universidad Nacional de La Plata)

  • Javier Ibarlucia

    (Central Bank of Argentina, Universidad Nacional de La Plata)

  • Mariano Sardi

    (Central Bank of Argentina)

Abstract

This paper presents and evaluates the hypothesis that emerging countries specialized in commodity production are prone to experience non orthogonal commercial and financial shocks. Specifically, we investigate a set of global macroeconomic variables that, in principle, could simultaneously determine in opposite direction commodity prices and bonds spreads in commodity-exporting emerging economies. Employing common factors techniques and pairwise correlation analysis we find a strong negative correlation between commodity prices and emerging market spreads. Moreover, the empirical FAVAR (Factor Augmented VAR) model developed to test our main hypothesis confirms that this negative association pattern is not only explained by the fact that commodity prices are one of the most relevant fundamentals of bond spreads of commodity exporters. In particular, we find that reductions in international interest rates and global risk appetite; rises in quantitative global liquidity measures and equity returns; and US dollar depreciations, tend to diminish spreads of emerging economies and strengthen commodity prices at the same time. These results are relevant in order to improve our knowledge regarding the reasons behind some typical characteristics of emerging commodity producers, such as their tendency to experience high levels of macroeconomic volatility and procyclicality, or their propensity to be affected from exchange rate overshooting, external crisis and sudden stops. Concerning policy lessons, a mayor conclusion is the complexity of the task of disentangle challenges coming from financial openness and structural considerations in emerging economies, such as the lack of diversification of the productive structure or the difficulties of a grow strategy solely based on natural recourses. It would be profitable to internalize the connection between these two key variables in formulating and conducting economic policy.

Suggested Citation

  • Diego Bastourre & Jorge Carrera & Javier Ibarlucia & Mariano Sardi, 2012. "Common Drivers in Emerging Market Spreads and Commodity Prices," BCRA Working Paper Series 201257, Central Bank of Argentina, Economic Research Department.
  • Handle: RePEc:bcr:wpaper:201257
    as

    Download full text from publisher

    File URL: http://www.bcra.gov.ar/pdfs/investigaciones/WP_57_2012i.pdf
    File Function: English version
    Download Restriction: no

    File URL: http://www.bcra.gov.ar/pdfs/investigaciones/WP_57_2012e.pdf
    File Function: versión en Español
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Shigeto Kitano & Kenya Takaku, 2021. "Effect of Sovereign Wealth Funds in Commodity-Exporting Economies when Commodity Prices Affect Interest Spreads," Discussion Paper Series DP2021-22, Research Institute for Economics & Business Administration, Kobe University, revised Nov 2021.

    More about this item

    Keywords

    commodity prices; emerging economies; financial flows; market spreads;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bcr:wpaper:201257. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/bcraaar.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Federico Grillo (email available below). General contact details of provider: https://edirc.repec.org/data/bcraaar.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.