Commodity Price Shocks and the Odds on Fiscal Performance: A Structural VAR Approach

35 Pages Posted: 3 Mar 2006

See all articles by Francis Y. Kumah

Francis Y. Kumah

International Monetary Fund (IMF)

John Matovu

International Monetary Fund (IMF)

Date Written: August 2005

Abstract

Unanticipated changes in commodity prices can generate significant movements in fiscal aggregates. This paper seeks to understand the dynamics of these fiscal movements in the context of transitory commodity price shocks using sample data from four CIS countries: two oil-producing and two non-oil commodity-intensive countries. It adopts a structural VAR approach and identifies the dynamic effects of commodity price shocks on fiscal performance under two broad tax regimes. Stochastic simulations indicate high probabilities of fiscal over-performance in the short term when commodity prices are high. These probabilities deteriorate significantly, however, in the long term after the transitory positive commodity price shock has dissipated, particularly when lax fiscal policy is adopted during the period of the price boom.

Keywords: Commodity price shocks, structural VAR, tax regimes, pro-cyclical fiscal policy

JEL Classification: C50, E62, E66

Suggested Citation

Kumah, Francis Y. and Matovu, John, Commodity Price Shocks and the Odds on Fiscal Performance: A Structural VAR Approach (August 2005). Available at SSRN: https://ssrn.com/abstract=888040 or http://dx.doi.org/10.2139/ssrn.888040

Francis Y. Kumah (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

John Matovu

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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