Impact of Oil and Agricultural Shocks on the Financial Markets of Emerging Market Economies

Abstract

We assess oil and agricultural price shocks in the financial markets of six EMEs (Brazil, Chile, Mexico, India, South Africa, and Turkey) using the GVAR. Positive oil price shocks provoke falls in all stock markets, devaluations in four domestic currencies, and tight monetary policies in two economies. The variance decomposition indicated that this shock is more influential in the stock markets, followed by the exchange rates. Compared to the oil price, shocks in agricultural prices caused appreciations in all domestic currencies. This shock is pervasive in all exchange markets in the first months, losing importance over time. The distinct responses to different commodities shocks point out that the kind of shock is relevant to comprehend its influence on EMEs. We detected relevant heterogeneities concerning the spreading of commodities shocks on domestic financial markets, especially in South Africa.

KEYWORDS:

• Oil price
• stock market
• exchange rate
• interest rate
• emerging market economies
• fluctuations
• agricultural prices

JEL Code:

• G17
• E37
• F41

Disclosure statement

No potential conflict of interest was reported by the author(s).

Correction Statement

This article has been corrected with minor changes. These changes do not impact the academic content of the article.

Notes

1 We considered that an oil shock (wti) initially affects the expectations, cli. Subsequently, financial markets react, r and q. These movements impact domestic prices, cpi, and finally production, y. Thus, our ordering is: (wtiit,cliit,rit,qit,cpiit,yit).

Additional information

Notes on contributors

Luccas Assis Attílio

Luccas Assis Attílio, Professor of Economics, Department of Economics, Federal University of Ouro Preto, Mariana-MG, Brazil.