Effects of global liquidity and commodity market shocks in a commodity-exporting developing economy

Doojav, Gan-Ochir and Luvsannyam, Davaajargal and Enkh-Amgalan, Elbegjargal (2022): Effects of global liquidity and commodity market shocks in a commodity-exporting developing economy.

Abstract

This paper assesses the effects and transmission mechanisms of global liquidity and commodity market shocks in Mongolia, a commodity-exporting developing economy, using a structural vector autoregression (SVAR) model. Results show that boom and bust cycles in commodity and international financial markets lead to business and financial cycles in the economy as these shocks account for 30, 45, and 60 percent of domestic output, real exchange rate, and lending rate fluctuations, respectively. Commodity demand shocks have more persistent and robust effects on domestic cycles than commodity supply shocks. Trade and financial (resource export revenues, lending rate, and exchange rate) channels play an essential role in transmitting the shocks. Buoyant commodity demand and global liquidity shocks lead to a significant fall in the domestic lending rate, while positive commodity supply and global liquidity shocks appreciate the real exchange rate.

• Item Type: MPRA Paper
• Language: English
• Keywords: Commodity demand shocks, Commodity supply shocks, Global liquidity shocks, Business cycle, Structural VAR, Mongolia.
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics; F - International Economics > F6 - Economic Impacts of Globalization > F62 - Macroeconomic Impacts

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