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Commodity Cycles and Financial Instability in Emerging Economies

Author

Listed:
  • Mikhail Andreev

    (Bank of Russia, Russian Federation)

  • M. Udara Peiris

    (National Research University Higher School of Economics, Russian Federation)

  • Alexander Shirobokov

    (BNational Research University Higher School of Economics, Russian Federation)

  • Dimitrios P. Tsomocos

    (Saïd Business School and St Edmund Hall, University of Oxford; National Research University Higher School of Economics)

Abstract

Commodity exporting economies display procyclicality with the price of commodity exports. Although financial frictions may amplify commodity price shocks, how they do so for net exporters is unclear. Using Russian data from 2001-2018 we estimate a small open economy New Keynesian model with a banking system and leveraged domestic firms who issue secured debt and may default on their unsecured domestic debt. The collateral constraint and default generate financial intermediation wedges that vary endogenously over the business cycle, amplify the estimated contribution of commodity price shocks, and reduce the importance of investment and discount factor shocks. With financial frictions, optimal policy is characterized by monetary policy with a lower inflation and GDP target, but has a significant role for targeting the credit-to-GDP ratio through a combination of macroprudential tools.

Suggested Citation

  • Mikhail Andreev & M. Udara Peiris & Alexander Shirobokov & Dimitrios P. Tsomocos, 2020. "Commodity Cycles and Financial Instability in Emerging Economies," Bank of Russia Working Paper Series wps57, Bank of Russia.
    • Handle: RePEc:bkr:wpaper:wps57
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    Cited by:

    1. Xuan Wang, 2020. "A Macro-Financial Perspective to Analyse Maturity Mismatch and Default," Tinbergen Institute Discussion Papers 20-064/IV, Tinbergen Institute.
    2. Li, Kexin & Chen, Zhongfei & Andrikopoulos, Athanasios, 2024. "Capital inflow liberalization and bank credit risk," Journal of International Money and Finance, Elsevier, vol. 142(C).
    3. Nadezhda Ivanova & Mikhail Andreev & Andrey Sinyakov & Ivan Shevchuk, 2019. "Review of Bank of Russia Conference on 'Macroprudential Policy Effectiveness: Theory and Practice'," Russian Journal of Money and Finance, Bank of Russia, vol. 78(3), pages 89-121, September.
    4. Martínez, J-F. & Peiris, M.U. & Tsomocos, D.P., 2020. "Macroprudential policy analysis in an estimated DSGE model with a heterogeneous banking system: An application to Chile," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 1(1).

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    More about this item

    Keywords

    business cycles; small open economy; emerging markets; commodity prices; financial stability; macroprudential policy;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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