Commodity Commotion

By iMFdirect

Terms of trade is the price of a country’s exports relative to its imports. The commodity terms of trade refers to a country’s commodity exports relative to its commodity imports.

When the price of commodities, like oil, plummeted in 2015, economies that rely on exporting commodities had their terms of trade drop by an average of about 10 percent of GDP that year. Economies that rely more on importing commodities saw about a 2 percent of GDP benefit from the 2015 drop in prices.  Continue reading “Commodity Commotion” »

By | December 21st, 2016|commodities, Economic research, IMF, International Monetary Fund, U.S.|

Saving Latin America’s Unprecedented Income Windfall

by Gustavo Adler and Nicolás Magud

(Versions in Español and Português)

Commodity exporting countries in Latin America have benefited strongly from the commodity price boom that began around 2002. And the accompanying improvements in public and external balance sheets have fed a sense that this time the macroeconomic response to the terms-of-trade boom has been different (and more prudent) than in past episodes. But, has it?

In our recent work, we analyze the history of Latin America’s terms-of-trade booms during 1970–2012 and quantify the associated income windfall (i.e., the extra income arising from improved terms-of-trade). We also document saving patterns during these episodes and assess the extent of the “effort” to save the income windfall.

Our findings suggest that, although the additional income shock associated to the recent terms-of-trade boom is unprecedented in magnitude, the effort to save it has been lower than in past episodes.

Continue reading “Saving Latin America’s Unprecedented Income Windfall” »

Does Cheap Foreign Money Bring Risks for Latin America?

By Nicolás Eyzaguirre

Versión en Español

Not so long after the global financial crisis, the supply of foreign financing has become abundant, and cheap, for many emerging market countries.  This sounds like good news for Latin America, and it is—creating opportunities for debt management, saving on interest paid to foreigners, and expanding opportunities for investment.  But it also comes with a number of potential risks that need to be managed.

Our new Regional Economic Outlook for the Western Hemisphere takes an in-depth look at the risks arising from what we call “easy external financial conditions.”  There we analyze how the more financially integrated economies of Latin America have responded to such conditions in the past, with comparison to countries of other regions. Our comparisons focus especially on a group of advanced economies—Canada, Australia and New Zealand, and Norway—that also are commodity exporters, as well as being inflation targeters with highly flexible exchange rates.

Continue reading “Does Cheap Foreign Money Bring Risks for Latin America?” »

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