06.04.2019 Discussion of Commodity and credit cycles in resource-rich economies by Marina Tiunova Marco Jacopo Lombardi Roma, 22 November 2018 The views.

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Presentation transcript:

06.04.2019 Discussion of Commodity and credit cycles in resource-rich economies by Marina Tiunova Marco Jacopo Lombardi Roma, 22 November 2018 The views expressed are solely mine and should not be attributed to the BIS

The punchline of the paper 06.04.2019 The punchline of the paper Investigates the impact of commodity prices on financial cycles of commodity exporters Exogenous shocks to global commodity prices are identified using a Cholesky ordering Higher commodity prices fuel credit growth Notably in USD in the case of Russia Highly policy relevant I will explore some policy implications But first comment on the empirical setup

Identification and methodology

A closer look at the model Bayesian VAR with Cholesky identification Several variables collected in blocs: External (including commodity prices) Domestic macro Domestic financial Slow to fast? Yes, for the domestic bloc No, in the external bloc (VIX, commodity, real GDP) Typical ordering (Kilian 2009): oil supply, economic activity, oil price

A possible alternative Using a FAVAR (Bernanke, Boivin, Elisaz 2004) Extract one factor per bloc Apply a recursive ordering Use loadings to reconstruct responses of original variables Enables including all financial cycle indicators at once

Results and policy considerations

The case of Russia

How I read these results Higher commodity prices lead to an appreciation Monetary policy tries to counteract it through a loosening This produces a further increase in credit growth Monetary policy turns out to be procyclical Can macro-prudential policy counteract this? Apparently this is not the case for Australia Is this an EME story? Is this related to the volatility of capital flows?

Summary and suggestions The paper tackles a key issue for resource-rich economies And raises important and far-fetching policy implications: Pro-cyclicality of monetary policy response to commodity price shocks Effectiveness of macro-prudential policies My suggestions: Check robustness of the results to different identification schemes Try to include macro-prudential policy shocks E.g. based on the MPP index

Thank you!