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Terms of Trade Shocks and Investment in Commodity-Exporting Economies

Jorge Fornero, Markus Kirchner and Andres Yany

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: We study the effects of commodity price shocks in small open commodity-exporting economies, focusing on metals prices and their impact on sectoral investment. First, using a standard SVAR approach, we conduct estimations for major commodity exporters (Australia, Canada, Chile, New Zealand, Peru and South Africa) to identify general cross-country patterns. Second, we use a DSGE model for Chile to study the propagation channels of commodity price changes and to implement counterfactual policy exercises. Our results suggest expansionary effects of commodity price increases in most countries, driven by positive responses of commodity investment that spill over to non-commodity sectors. The magnitude of these responses depends mainly on the size of the share of commodity exports and on the degree of persistency of the shock. Finally, our policy exercises highlight the importance of flexible inflation targeting, floating exchange rates and structural fiscal rules to efficiently manage commodity price volatility.

Date: 2016-01
New Economics Papers: this item is included in nep-dge and nep-mac
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Citations: View citations in EconPapers (30)

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https://www.bcentral.cl/documents/33528/133326/DTBC_773.pdf (application/pdf)

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Chapter: Terms of Trade Shocks and Investment in Commodity-Exporting Economies (2015) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:chb:bcchwp:773

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