ISSN: 2056-3736 (Online Version) | 2056-3728 (Print Version)

Commodity-Price Volatility, Exchange Market Pressure, and Macroeconomic Linkages: Evidence from Latin America

Scott W. Hegerty

Correspondence: Scott W. Hegerty,

Department of Economics, Northeastern Illinois University, USA

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As a major source of commodity exports, Latin America has long been susceptible to external shocks, that continue to this day. With prices falling for oil, copper, and other key products, it is important to study the effects of commodity-price volatility on the region’s macroeconomies. Using Principal Components Analysis, this study creates an index of Latin American commodity prices. This index’s volatility is then entered into a VAR that includes exchange market pressure (EMP), U.S. stock prices, and other macroeconomic variables. Granger causality and impulse-response functions show that variables such as growth are more affected by commodity-price volatility than is EMP. One key finding is that commodity-price risk reduces economic growth in Mexico, Chile, and Peru, but appears to increase Brazil’s growth rate. Further exploration might help reveal possible differences in Brazil’s economic structure that might drive this result.


  Commodity Prices, Volatility, Exchange Market Pressure, Latin America, Vector Autoregression


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