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Commodity Price Shocks and Financial Sector Fragility

Author

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  • Tidiane Kinda
  • Montfort Mlachila
  • Rasmané Ouedraogo

Abstract

This paper investigates the impact of commodity price shocks on financial sector fragility. Using a large sample of 71 commodity exporters among emerging and developing economies, it shows that negative shocks to commodity prices tend to weaken the financial sector, with larger shocks having more pronounced impacts. More specifically, negative commodity price shocks are associated with higher non-performing loans, bank costs and banking crises, while they reduce bank profits, liquidity, and provisions to nonperforming loans. These adverse effects tend to occur in countries with poor quality of governance, weak fiscal space, as well as those that do not have a sovereign wealth fund, do not implement macro-prudential policies and do not have a diversified export base. These findings are robust to a battery of robustness checks.

Suggested Citation

  • Tidiane Kinda & Montfort Mlachila & Rasmané Ouedraogo, 2016. "Commodity Price Shocks and Financial Sector Fragility," IMF Working Papers 16/12, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:16/12
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:jpolmo:v:40:y:2018:i:5:p:959-997 is not listed on IDEAS
    2. repec:eee:inecon:v:116:y:2019:i:c:p:158-172 is not listed on IDEAS
    3. repec:scn:financ:y:2018:i:4:p:146-170 is not listed on IDEAS
    4. International Monetary Fund, 2016. "Gabon; Selected Issues," IMF Staff Country Reports 16/87, International Monetary Fund.
    5. Lodge, David & Manu, Ana-Simona, 2019. "EME financial conditions: which global shocks matter?," Working Paper Series 2282, European Central Bank.
    6. Giménez Gómez, José M. (José Manuel), 2016. "Linking social heterogeneity and commodity price shocks to civil conflicts," Working Papers 2072/290744, Universitat Rovira i Virgili, Department of Economics.
    7. repec:kap:annfin:v:14:y:2018:i:1:d:10.1007_s10436-017-0310-3 is not listed on IDEAS
    8. Pinshi, Christian P., 2018. "Les effets macroéconomiques de la chute des cours des produits de base: Evaluation sur la République démocratique du Congo
      [The Macroeconomic Effects of commodity bust: Assessment on Democratic Rep
      ," MPRA Paper 93130, University Library of Munich, Germany, revised 0208.
    9. International Monetary Fund, 2016. "Republic of Equatorial Guinea; Selected Issues," IMF Staff Country Reports 16/358, International Monetary Fund.
    10. repec:eee:finsta:v:39:y:2018:i:c:p:237-258 is not listed on IDEAS
    11. Benedicte Vibe Christensen, 2016. "Challenges of low commodity prices for Africa," BIS Papers, Bank for International Settlements, number 87, July.

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