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Commodity price volatility, fiscal balance and real interest rate

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Majumder, MK, Raghavan, M ORCID: 0000-0002-4123-5004 and Vespignani, JL ORCID: 0000-0003-0265-4377 2020 , Commodity price volatility, fiscal balance and real interest rate.

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Abstract

The objective of this study is to explore the impact of commodity price volatility on the governments’ fiscal balance. Using a dynamic panel data model for 108 countries from 1993 to 2018, this study finds that governments’ fiscal balance deteriorates with commodity price volatility. A one standard deviation increase in commodity price volatility leads to a reduction of approximately 0.04 units in the fiscal balance as a percentage of gross domestic product. In addition, we examine the role of real interest rates in influencing the relationship between commodity price volatility and fiscal balance. The empirical results suggest that the negative impact of commodity price volatility on fiscal balance can be mitigated with lower real interest rate.

Item Type: Report (Discussion Paper)
Authors/Creators:Majumder, MK and Raghavan, M and Vespignani, JL
Keywords: Commodity prices, commodity price volatility, fiscal balance, real interest rate
Publisher: University of Tasmania
Copyright Information:

Copyright 2020 University of Tasmania

Additional Information:

Discussion Paper Series N 2020-08
JEL Classification Numbers: E58, E62, G01

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