Commodity Prices Shocks and the Balance Sheet Effect in Latin America

dc.contributor.authorTorres García, Alejandro
dc.contributor.authorWberth Escobar, Laura
dc.coverage.spatialMedellín de: Lat: 06 15 00 N degrees minutes Lat: 6.2500 decimal degrees Long: 075 36 00 W degrees minutes Long: -75.6000 decimal degreeseng
dc.description.abstractEmerging market economies(EMEs), particularly the commodity exporterones,are ex- posed to world’s dynamics through different channels. In this paper,we consider the role of (exogenous) commodity prices shocks in explaining business cycles in EMEs,by proposing a financial transmission mechanism: the balance sheet effect. Our hypothesis is that a nega- tive commodity price shock increases the firm’s external debt and the cost of the new debt. In consequence,the aggregate investment decreases amplifying the output contraction.To test it,we estimate a series of VAR models using quarterly data on corporate external debt, nominal exchange rate, EMBI+ spreads, the local currency value of external debt to nomi- nal GDP ratio and real GDP,covering the period 2000-2017. We do this for Latin America and then, we focus on five particular economies: Brazil, Chile, Colombia, Mexico and Peru. We find that balance sheets do matter and they exacerbate the output’s contraction when the commodity price shock is negative. We also find that, turning the financial channel off, the real GDP cumulative response in Latin America is smaller than in the unrestricted model. Finally, we find no evidence on the existence of the balance sheet effect for Chile.eng
dc.publisherUniversidad EAFITspa
dc.publisher.departmentEscuela de Economía y Finanzasspa
dc.rights.localAcceso abiertospa
dc.subject.keywordEmerging Economiesspa
dc.subject.keywordCommodity Pricesspa
dc.subject.keywordInternational Business Cyclesspa
dc.subject.keywordBalance Sheet Effectspa
dc.subject.keywordNominal Exchange Ratespa
dc.titleCommodity Prices Shocks and the Balance Sheet Effect in Latin Americaeng
dc.type.localDocumento de trabajo de investigaciónspa


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