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External Commodity Shocks and the Insulating Role of Fiscal Policy on Real Output: Evidence from a Commodity-Exporting Economy

Author

Listed:
  • Victor Pontines

    (The South East Asian Central Banks (SEACEN) Research and Training Centre)

  • Davaajargal Luvsannyam

    (The Bank of Mongolia)

Abstract

This study investigates the role of fiscal policy in stabilising resource-rich economies vulnerable to external commodity shocks, with a specific focus on Mongolia. We analyse the effects of various external commodity shocks on Mongolia’s economy and find that fiscal policy’s responses to these shocks have been counter-cyclical. Additionally, we construct policy counterfactuals to examine the insulating role of fiscal policy on real domestic output. The findings reveal that counter-cyclical fiscal measures, particularly government expenditure, and to a lesser extent, government revenue, played an important role in Mongolia’s response to external commodity shocks.

Suggested Citation

  • Victor Pontines & Davaajargal Luvsannyam, 2023. "External Commodity Shocks and the Insulating Role of Fiscal Policy on Real Output: Evidence from a Commodity-Exporting Economy," Working Papers wp51, South East Asian Central Banks (SEACEN) Research and Training Centre.
    • Handle: RePEc:sea:wpaper:wp51
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    More about this item

    Keywords

    external commodity shocks; fiscal policy; real output; Mongolia;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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