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Chinese resource demand or commodity price shocks: Macroeconomic effects for an emerging market economy

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  • Renée Fry-McKibbin
  • Rodrigo da Silva Souza

Abstract

This paper empirically addresses the hypothesis that of the external commodity based sector, Chinese resource demand is the most important driver of emerging market economy business cycles using Brazil as a representative case. Using a structural VAR to examine the effects of Chinese resource demand, world commodity prices and foreign output on domestic macroeconomic variables, we show that shocks to Chinese demand induce an expansion in Brazilian resource exports, the non-tradeable primary commodity sector and other domestic activity. Commodity price shocks are less favorable than Chinese resource demand shocks. Our findings identify the important role of the interest rate in amplifying the real effects of the commodity sector boom, in contrast to the role of the interest rate in developed countries. By incorporating Chinese resource demand in addition to commodity prices, commodity prices play a smaller role in explaining the variance of domestic output than found in previous literature.

Suggested Citation

  • Renée Fry-McKibbin & Rodrigo da Silva Souza, 2018. "Chinese resource demand or commodity price shocks: Macroeconomic effects for an emerging market economy," CAMA Working Papers 2018-45, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  • Handle: RePEc:een:camaaa:2018-45
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    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2018-11/45_2018_fry-mckibbin_souza_v1.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Brazil; EME business cycles; Dutch disease; SVAR;

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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