The impact of commodity price shocks in a copper-rich economy: the case of Chile

Research output: Contribution to journalArticlepeer-review

10 Scopus citations

Abstract

The present paper analyzes how shocks to the copper price affect the economy of Chile, the world’s largest producer of this metal. Chile is an interesting case study, it being an emerging commodity producing economy that has a fiscal rule, which explicitly takes into account the expected future copper price, and has adopted an inflation targeting monetary policy with a fully floating exchange rate. The empirical analysis consists in estimating structural vector autoregressive models where the shocks are identified by sign restrictions in order to make the distinctions of those caused by increasing world demand, decreasing copper supply, and specific copper demand, e.g., speculation in future price increases. Positive copper price shocks, independently of the source, result in an appreciated currency, whereas the effects on the other macroeconomic variables do depend on the source of the shock. While demand shocks affect the Chilean gross domestic product positively, this is not the case when the copper price increases because of a supply-side event or a specific copper demand. Particularly, the activity in the mining sector is affected, while the non-mining sector expands only when the shock is caused by increasing world demand. One explanation could be the stabilizing effect of the fiscal rule. The impacts on inflation and the interest rate are correlated because of the inflation targeting monetary policy.

Original languageEnglish
Pages (from-to)1291-1318
Number of pages28
JournalEmpirical Economics
Volume57
Issue number4
DOIs
StatePublished - 1 Oct 2019
Externally publishedYes

Keywords

  • Commodity price shocks
  • Impulse response
  • Macroeconomic impact
  • Sign restrictions

Fingerprint

Dive into the research topics of 'The impact of commodity price shocks in a copper-rich economy: the case of Chile'. Together they form a unique fingerprint.

Cite this