Terms of Trade Shocks and Fiscal Cycles (original) (raw)
Related papers
The Sources of Fiscal Fluctuations
IMF Working Papers
This paper assesses the dynamic impact of global macroeconomic conditions, commodity price movements, shifts in portfolio preferences, and domestic shocks on fiscal outcomes—notably the budget deficit, its main components, and debt—across a wide range of countries. Heterogeneity is investigated across the level of development and other structural characteristics. Dynamics are explored via panel local projections, while robustness is assessed via dynamic panel and system GMM regressions. World growth, financial risk appetite, political events, and commodity export prices are key determinants of fiscal outcomes in EM, while domestic growth, commodity import prices, and banking crises appear to matter more in AE. Our estimates help quantify the amount of fiscal risk generated by various factors, and thus provide inputs for the design of potential insurance mechanisms or state-contingent debt instruments that could assist in smoothing fiscal fluctuations.
The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent. Policy Research Working Paper 8712 Fiscal buffers have shrunk across the world. This paper argues that limited fiscal room in emerging market economies today is partly due to the commodity super cycle of 2000-15. The super cycle created the mirage that economic performance had structurally improved, mistaking a long, commodity-fueled uptick in the business cycle for higher trend growth. This thinking supported fiscal expansions. When the commodity boom ended, it became apparent that countries had saved less than they should have, and that fiscal policy had, perhaps inadvertently, been pro-cyclical. It left countries with depleted fiscal buffers and large budgets when the cycle came to an end, limiting room for fiscal stimulus when needed. The paper illustrates the argument with reference to the South African experience.
The Resource Curse: Does Fiscal Policy make a Difference?
This paper explores empirically the relationship between commodity prices, fiscal policy, and income per capita. First we construct time-varying indicators of fiscal cyclicality for 121 countries since 1970. Then we estimate panel data cointegrating vectors between income per capita, an index of commodity prices, and an interaction between commodity prices and our fiscal cyclicality indicators. We do this for different groups of commodities and different groups of countries. The results confirm the existence of a resource curse, which is contingent on the quality of institutions and varies with the type of commodities. The new findings are related to fiscal policy. The cyclical conduct of fiscal policy explains a large fraction of the long-run effects of commodity prices on GDP per capita. The systematic response of fiscal spending to changes in commodity prices beyond the cyclical stance of the economy is relevant for obtaining this result. In general, if fiscal policy is conducted in a procyclical way, the long-run effect of an increase in commodity prices becomes more negative. But this is not always the case. For certain commodities and group of countries the effect is the opposite. All of these results are driven by the time variation in fiscal policy and obtained after controlling for institutional quality.
Procyclicality of Fiscal Policy in Emerging Countries: The Cycle is the Trend
SSRN Electronic Journal, 2000
La serie de Documentos de Trabajo en versión PDF puede obtenerse gratis en la dirección electrónica: http://www.bcentral.cl/esp/estpub/estudios/dtbc. Existe la posibilidad de solicitar una copia impresa con un costo de 500siesdentrodeChileyUS500 si es dentro de Chile y US500siesdentrodeChileyUS12 si es para fuera de Chile. Las solicitudes se pueden hacer por fax: (56-2) 6702231 o a través de correo electrónico: bcch@bcentral.cl.
Commodity Price Shocks and the Odds on Fiscal Performance
2005
The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.
Applied Economics, 2018
This article studies the determinants of size differentials between fiscal multipliers in countries around the world, both advanced and developing economies. We introduce variables not considered before for explaining multiplier size differentials, such as capital flows and the openness of capital markets, while controlling for domestic conditions and exchange rate regimes. We also disaggregate GDP into its main components in order to identify the channels through which external and internal factors can influence GDP after a change in fiscal policy. Our results point to the existence of a new channel through which fiscal policy effectiveness is affected. Capital flows, especially FDI flows, play an important role in determining the sizes of fiscal multipliers, and a country's external conditions largely explain GDP changes after fiscal expenditure shocks. Our results also point towards a strong link between a country's international position and its real economy.
Explaining the Procyclicality of Fiscal Policy in Developing Countries
Center for Research in Economic Development and International Trade (CREDIT) Research Paper, 2011
The procyclicality of fiscal policy that is prevalent in developing countries and emerging markets is well known. Its explanation is less clear. Recently, social inequality and the combination of corruption and democracy have been suggested as alternatives to the traditional explanation of these countries’ exposure to boom-bust cycles in international credit markets. Differences in methodological approach are also partly responsible for diverging empirical results. In this paper, competing hypotheses are tested on a comprehensive set of measures of the cyclicality of fiscal policy. The evidence for corruption and democracy is stronger than for social inequality or net foreign debt, but the interpretation of this result is less obvious, since the index of corruption is closely correlated with poor credit ratings. In OECD countries, by contrast, the cyclicality of fiscal policy largely reflects the strength of automatic stabilizers.