CEPII, Recherche et Expertise sur l'economie mondiale
World Interest Rates and Macroeconomic Adjustments in Developing Commodity Producing Countries


Vincent Bodart
François Courtoy
Erica Perego

 Points clés :
  • We reconsider how world interest rate shocks impact small open economies.
  • Because of financialisation of commodities, commodity prices are an additional channel through which interest rate shocks are transmitted internationally.
  • We build on a standard model for a small open economy including the competitive storage mechanism of commodities.
  • We find that the endogenous response of commodity prices amplifies the response of commodity-exporting countries to international monetary shocks.
  • Because of the commodity price channel, even small open commodity-exporting economies that are disconnected from international financial markets can be affected by international financial shocks.

 Résumé :
With commodities becoming international financial securities, commodity prices are affected by the international financial cycle. With this evidence in mind, this paper reconsiders the macroeconomic adjustment of developing commodity-exporting countries to changes in world interest rates. We proceed by building a model of a small open economy that produces a non-tradable good and a storable tradable commodity. The difference with standard models of small open economies lies in the endogenous response of commodity prices which -due to commodity storage- adjust to variations in international interest rates. We find that the endogenous response of commodity prices amplifies the reaction of commodity exporting countries to international monetary shocks. This suggests that commodity exporting countries are more vulnerable to unfavourable international monetary disturbances than other small open economies. In particular, because of the existence of the commodity price channel, even those small open commodity-exporting economies that are disconnected from international financial markets can be affected by the international financial cycle.


 Mots-clés : Storable Commodity | International Financial Shock | Developing Economies

 JEL : E32, F41, G15, O11, Q02
CEPII Working Paper
N°2021-01, January 2021

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