1.
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

2. The punchline of the paper
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

3. Identification and methodology

4. 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

5. 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

6. Results and policy considerations

7. The case of Russia

8. 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?

9. 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

10. Thank you!