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The impact of commodity price volatility on fiscal balance and the role of real interest rate

Majumder, MK, Raghavan, M ORCID: 0000-0002-4123-5004 and Vespignani, J ORCID: 0000-0003-0265-4377 2022 , 'The impact of commodity price volatility on fiscal balance and the role of real interest rate' , Empirical Economics , pp. 1-28 , doi: 10.1007/s00181-021-02168-3.

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Abstract

This study explores the impact of commodity price volatility on external debt accumulation under fixed, managed, and floating exchange rate regimes. We estimate dynamic panel data models for 97 countries from 1993 to 2016. Our empirical findings show that commodity price volatility increases external debt accumulation for commodity-exporting countries. This impact is three-times higher for countries with fixed exchange rate regimes compared to managed floating exchange rate regimes. Under floating exchange regimes, the effect of commodity price volatility on external debt is statistically insignificant. Our results suggest that the adoption of a floating exchange rate regime by commodity-exporting countries is critical to mitigate the effects of commodity price volatility on external debt accumulation.

Item Type: Article
Authors/Creators:Majumder, MK and Raghavan, M and Vespignani, J
Keywords: commodity prices, commodity price volatility, fiscal balance, real interest rate, commodity prices, external debt, exchange rate regimes
Journal or Publication Title: Empirical Economics
Publisher: Springer
ISSN: 0377-7332
DOI / ID Number: 10.1007/s00181-021-02168-3
Copyright Information:

© The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature 2021

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