IMF Working Papers

Shocks and Shields: Macroeconomic Institutions During Commodity Price Swings

By Rabah Arezki, Patrick A. Imam, Kangni R Kpodar

January 17, 2025

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Format: Chicago

Rabah Arezki, Patrick A. Imam, and Kangni R Kpodar. "Shocks and Shields: Macroeconomic Institutions During Commodity Price Swings", IMF Working Papers 2025, 015 (2025), accessed January 22, 2025, https://doi.org/10.5089/9798400296710.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Countries facing commodity (net) export price shocks tend to implement fiscal rules and to financially close their economies, demonstrating “macroeconomic prudence”. These effects are (unsurprisingly) asymmetric between import and export price shocks. The impact of commodity (net) export prices on macroeconomic institutions is influenced by the intensity of shocks and income levels of the countries, with higher-income countries driving the main results. These findings remain robust across various checks, including different estimators and additional control and dependent variables. These findings suggest that macroeconomic institutions are reactive to terms of trade shocks stemming from commodity price fluctuations.

Subject: Commodities, Commodity price shocks, Commodity prices, Exchange rate arrangements, Export prices, Fiscal policy, Fiscal rules, Foreign exchange, Import prices, Prices

Keywords: Commodity price shocks, Commodity prices, Commodity prices, Exchange rate arrangements, Export prices, Fiscal rules, Import prices, Macroeconomic institutions, Natural resources, Resource curse

Publication Details

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