The Adjustment to Commodity Price Shocks in Chile, Colombia, and Peru
26 Pages Posted: 25 Oct 2017
Date Written: September 2017
Abstract
This paper presents a comparative analysis of the macroeconomic adjustment in Chile,Colombia, and Peru to commodity terms-of-trade shocks. The study is done in two steps:(i) an analysis of the impulse responses of key macroeconomic variables to terms-of-tradeshocks and (ii) an event study of the adjustment to the recent decline in commodity prices.The experiences of these countries highlight the importance of flexible exchange rates tohelp with the adjustment to lower commodity prices, and staying vigilant in addressingdepreciation pressures on inflation through tightening monetary policies. On the fiscal front,evidence shows that greater fiscal space, like in Chile and Peru, gives more room foraccommodating terms-of-trade shocks.
Keywords: Western Hemisphere, Peru, Chile, Colombia, JEL Classification Numbers: E62, F14, H50, O13 Commodity Prices, Fiscal Policy, Flexible Exchange Rates, Commodity Prices, Country and Industry Studies of Trade, General
JEL Classification: E62, F14, H50, O13
Suggested Citation: Suggested Citation