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Commodity-Price Volatility, Exchange Market Pressure, and Macroeconomic Linkages: Evidence from Latin America

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  • Scott W. Hegerty

Abstract

As a major source of commodity exports, Latin America has long been susceptible to external shocks, that continue to this day. With prices falling for oil, copper, and other key products, it is important to study the effects of commodity-price volatility on the region’s macroeconomies. Using Principal Components Analysis, this study creates an index of Latin American commodity prices. This index’s volatility is then entered into a VAR that includes exchange market pressure (EMP), U.S. stock prices, and other macroeconomic variables. Granger causality and impulse-response functions show that variables such as growth are more affected by commodity-price volatility than is EMP. One key finding is that commodity-price risk reduces economic growth in Mexico, Chile, and Peru, but appears to increase Brazil’s growth rate. Further exploration might help reveal possible differences in Brazil’s economic structure that might drive this result.

Suggested Citation

  • Scott W. Hegerty, 2015. "Commodity-Price Volatility, Exchange Market Pressure, and Macroeconomic Linkages: Evidence from Latin America," Bulletin of Applied Economics, Risk Market Journals, vol. 2(2), pages 11-21.
    • Handle: RePEc:rmk:rmkbae:v:2:y:2015:i:2:p:11-21
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    References listed on IDEAS

    as
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    Cited by:

    1. Kablan, Sandrine & Ftiti, Zied & Guesmi, Khaled, 2017. "Commodity price cycles and financial pressures in African commodities exporters," Emerging Markets Review, Elsevier, vol. 30(C), pages 215-231.

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    More about this item

    Keywords

    Commodity Prices; Volatility; Exchange Market Pressure; Latin America; Vector Autoregression;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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