A case for leaning against the wind in a commodity-exporting economy

Kozlovtceva, Irina; Ponomarenko, Alexey; Sinyakov, Andrey; Tatarintsev, Stas

doi:10.1016/j.inteco.2020.08.003

Cited by 3 publications

(5 citation statements)

References 24 publications

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“…Interestingly, both industrial and emerging economies experienced more frequent credit booms under fixed or managed exchange rates compared to floating or dirty floating regimes (Mendoza and Terrones, 2008). Another interesting view on determinants of credit growth was suggested by Kozlovtceva et al (2020). Authors found that in commodity-rich country positive commodity price shock would have a different effect depending on whether the country is emerging (real credit will grow) or developed (real credit shrink).…”

Section: Monetary Policy Transmissionmentioning

confidence: 99%

“…The issue was further studied by Mendoza and Terrones (2008), who discovered that during buildup phase of credit booms output, consumption and investment surpass their trend and underperform trend value when credit booms contract, also credit booms were found to be associated with “pro-cyclical movements in firm level indicators of leverage, firm values, and use of external financing, and in bank-level indicators of credit issuance and asset returns.” Interestingly, both industrial and emerging economies experienced more frequent credit booms under fixed or managed exchange rates compared to floating or dirty floating regimes (Mendoza and Terrones, 2008). Another interesting view on determinants of credit growth was suggested by Kozlovtceva et al (2020). Authors found that in commodity-rich country positive commodity price shock would have a different effect depending on whether the country is emerging (real credit will grow) or developed (real credit shrink).…”

Section: Literature Reviewmentioning

confidence: 99%

“…There are also studies that identify that policies interaction could be shaped by certain conditions. For instance, under high commodity price volatility, monetary policy that targets financial stability objectives (leaning against the wind) could be more effective than conventional inflation targeting Kozlovtceva et al (2020). Similarly, the recent work of Aikman et al (2020) proposed that the effect of monetary policy and financial conditions on macroeconomic welfare depends nonlinearly on existing nonfinancial sector credit.…”

Section: Literature Reviewmentioning

confidence: 99%

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Financial stability aspects of monetary policy transmission in developing countries: empirical evidence from Kazakhstan

Ybrayev

2022

IJDI

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Purpose This study aims to determine whether the transmission of monetary policy to the real economy depends on the structural conditions of financial stability. In particular, the paper shows that the effects of shocks to financial stability on output and inflation is conditional on the state of credit in the economy, measured broadly as a credit-to-GDP. Design/methodology/approach The authors use a threshold vector autoregression model with Bayesian techniques to investigate the impact of private nonfinancial sector credit on the dynamic relationship between financial conditions, monetary policy transmission mechanism and macroeconomic performance in Kazakhstan from 2005:Q1 to 2020:Q1. Findings In the modeled threshold vector autoregression (VAR) specification, the authors document that when the credit-to-GDP gap is low or the credit is below its trend, an increase to the interest rate leads to a short-term economic expansion. However, when the credit-to-GDP gap is high or the nonfinancial credit is above its trend, a tightening in monetary policy leads to an economic contraction with domestic financial conditions being weaker compared to a low credit environment. Originality/value The outcome is consistent with the related literature, which argues that a more sustained increase in credit is followed by a sharper economic contraction, but only when the economy is in the high credit state. These results highlight that financial stability measures (e.g. credit state) is important to take into account when conducting monetary policy in emerging economies.

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Section: Monetary Policy Transmissionmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

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Financial stability aspects of monetary policy transmission in developing countries: empirical evidence from Kazakhstan

Ybrayev

2022

IJDI

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“…Recent debates on commodity price movements have focused on their impact on macroeconomic indicators such as inflation and exchange rates. There is a belief that commodity prices tend to rise and fall together, influenced by common macroeconomic factors such as interest rates, industrial production, exchange rates, and inflation [1][2]. Commodity price shocks, particularly in strategic commodities like oil, gold, silver, and copper, can lead to expectations of higher inflation and subsequent monetary policy tightening [1].…”

Section: Introductionmentioning

confidence: 99%

“…There is a belief that commodity prices tend to rise and fall together, influenced by common macroeconomic factors such as interest rates, industrial production, exchange rates, and inflation [1][2]. Commodity price shocks, particularly in strategic commodities like oil, gold, silver, and copper, can lead to expectations of higher inflation and subsequent monetary policy tightening [1]. The choice between targeting the headline consumer price index or a measure of core prices in monetary policy response to commodity price shocks is also a topic in today's world [3][4][5]2].…”

Section: Introductionmentioning

confidence: 99%

Understanding Global Commodity Price Shocks on Exchange Rates and Inflation in Emerging Economies: ARDL Perspective

Boateng,

Karikari,

Fumey

et al. 2024

JEMT

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Aims: To analyze the changing relationship between commodity prices (cocoa, diesel, gold, oil, petrol) and macroeconomic factors (exchange rate and inflation) in Ghana and differentiate between long-term and short-term effects. Study Design: Quantitative Design with Time series analysis using the Autoregressive Distributed Lag (ARDL) technique. Methodology: The study utilized cointegration and Error Correction Model in econometric estimation. Time series data for commodity prices and macroeconomic factors were collected for the period 2003M01 to 2023M10. The ARDL technique was applied to differentiate between long-term and short-term effects of inflation and exchange rates. Results: The short-run and long-run results indicate a positive relationship between commodity prices and inflation and exchange rates. A 1% increase in diesel prices is associated with a 0.23% appreciation in Ghana's currency in the short run (p=0.019) and a 1.76% rise in inflation in the long run (p=0.012). Past inflation has a dominant influence on current inflation, with a 1 percentage point increase in the previous year's inflation leading to a 0.45 percentage point increase in the current inflation rate. Conclusion: Policymakers should prioritize stabilizing diesel prices, invest in storage facilities, promote alternative energy sources, strengthen domestic production and distribution of essential commodities, and adopt targeted monetary and fiscal policies to anchor inflationary expectations and address inflation inertia in Ghana.

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Effectiveness of the stabilization fiscal rule for resource-rich countries

Andreyev

2022

Vopr. èkon.

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This paper explores the efficacy of the fiscal rule enacted by regulators in exporting countries, which implies the smoothing of tax revenue from the sale of natural resources. Under “efficacy” we understand its stabilization effect that is lowering volatility (countercyclicality) of key macroeconomic variables following its imposition. The approach to the operation of the fiscal rule is based on two types of assumptions: those about the type of the fiscal rule and about the structure of the economy. The first ones take into account imperfections in the workings of the revenue smoothing mechanism; the second relate to the duration of price and wage contracts, the cost of investing in foreign assets, government demand structures, household habits and the share of Ricardian households. We use a DSGE model of a small open economy with a strong reliance on commodity exports. The paper analyzes the assumptions under which various modifications of the fiscal rule lose their efficiency in relation to inflation, output and the exchange rate. The study emphasizes the importance of accurate identifying of fiscal rule workings, as well as the need for correct measurement of economic indicators in order to determine the nature of the fiscal rule effect related to revenue smoothing. The conclusion is made regarding the effectiveness of the future fiscal rule in Russia in the absence of an external wealth fund and a closed financial account.

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A case for leaning against the wind in a commodity-exporting economy

Cited by 3 publications

References 24 publications

Financial stability aspects of monetary policy transmission in developing countries: empirical evidence from Kazakhstan

Financial stability aspects of monetary policy transmission in developing countries: empirical evidence from Kazakhstan

Understanding Global Commodity Price Shocks on Exchange Rates and Inflation in Emerging Economies: ARDL Perspective

Effectiveness of the stabilization fiscal rule for resource-rich countries

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