2021-06-10-IMF-Asymmetric_Non-Commodity_Output_Responses_to_Commodity_Price_Shocks_38页_2mb

Asymmetric Non-Commodity Output Responses to Commodity Price Shocks

Abstract

This paper examines the asymmetric responses of non-commodity output growth to positive and negative commodity terms-of-trade shocks using a sample of 27 oil-exporting countries and a panel VAR method. The study finds: (1) Short- and medium-run real non-commodity GDP growth responds more strongly to negative shocks than positive ones; (2) Lower fundamentals, such as high public debt and low international reserves, amplify this asymmetry and increase volatility; and (3) The impact of shocks grows following periods of prior CTOT changes. These findings highlight key factors influencing economic performance and policy responses.

Key Findings

1. Asymmetry in Output Responses: Negative commodity terms-of-trade shocks have a larger and more persistent impact than positive ones, with effects nearly doubling in size. High public debt exacerbates this asymmetry.

2. Role of Initial Conditions: Countries with strong pre-existing fundamentals (low debt, high reserves) are better equipped to mitigate negative impacts. Conversely, fiscal space is limited by high debt, reducing capacity for countercyclical policies.

3. Commodity Price Trend Impact: Positive shock effects are stronger after CTOT increases, while negative shocks cause more damage after declines. Latin America and sub-Saharan Africa show the highest asymmetry contribution.

4. Broader Implications: Non-commodity GDP variance explained ranges from 4.6% to 12% over the business cycle. Diversification improves but does not eliminate asymmetry in non-diversified countries.

Policy Implications

• Robust macroeconomic fundamentals are crucial for managing asymmetric responses.
• Policymakers should address vulnerabilities stemming from weak debt and reserves positions.
• Understanding asymmetrical transmission mechanisms can improve crisis management strategies in commodity-dependent economies.

Source: IMF Working Paper WP/21/163