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Mr. Francisco Roch, Mr. Ravi Balakrishnan, and Jorge Roldós

This paper presents a comparative analysis of the macroeconomic adjustment in Chile, Colombia, and Peru to commodity terms-of-trade shocks. The study is done in two steps: (i) an analysis of the impulse responses of key macroeconomic variables to terms-of-trade shocks and (ii) an event study of the adjustment to the recent decline in commodity prices. The experiences of these countries highlight the importance of flexible exchange rates to help with the adjustment to lower commodity prices, and staying vigilant in addressing depreciation pressures on inflation through tightening monetary policies. On the fiscal front, evidence shows that greater fiscal space, like in Chile and Peru, gives more room for accommodating terms-of-trade shocks.

Bertrand Gruss and Ms. Dora M Iakova

After skyrocketing over the past decade, commodity prices have remained stable or eased somewhat since mid-2011—and most projections suggest they are not likely to resume the upward trend observed in the last decade. This paper analyzes what this turn in the commodity price cycle may imply for output growth in Latin America and the Caribbean. The analysis suggests that growth in the years ahead for the average commodity exporter in the region could be significantly lower than during the commodity boom, even if commodity prices were to remain stable at their current still-high levels. Slower-than-expected growth in China represents a key downside risk. The results caution against trying to offset the current economic slowdown with demand-side stimulus and underscore the need for ambitious structural reforms to secure strong growth over the medium term.

International Monetary Fund. Research Dept.


The following remarks by the Acting Chair were made at the conclusion of the Executive Board’s discussion of the World Economic Outlook on September 16, 2009.

Mr. Philippe D Karam, Mr. Dirk V Muir, and Mr. Thomas Helbling

China and Australia have increasingly strong links, especially through trade. These are driven by demand from China for Australian commodities (coal and iron ore) and services (tourism and education). These links are influenced by China’s transition to a services-driven, consumer-led economy. Using ANZIMF, the Australia-New Zealand Integrated Monetary and Fiscal model, three risks (both upside and downside) to China during this transition process are considered, focusing on their spillovers to Australia. One simple takeaway is central to each risk – while the real GDP response to shocks in Australia typically is small, responses in demand components or sectors are usually much larger– along with three further takeaways, all of which help in the analysis of Australia in relation to any risk emanating from China.

Mr. Paul Cashin, C. John McDermott, and Mr. Alasdair Scott

This paper examines the duration and magnitude of commodity-price cycles. It finds that for most commodities, price slumps last longer than price booms. How far prices fall in a slump is found to be slightly larger than how far they rebound in a subsequent boom. There is little evidence of a consistent ‘shape’ to commodity-price cycles. For all commodities, the probability of an end to a slump in prices is independent of the time already spent in the slump, and for most commodities, the probability of an end to a boom in prices is independent of the time already spent in the boom.

International Monetary Fund

This Selected Issues paper and Statistical Appendix highlights that after eight years of decline, economic activity of Cameroon began to pick up following the January 1994 devaluation of the CFA franc, the accompanying upturn in world economic activity, and favorable international commodity prices. Real GDP, which had fallen by an annual average of 4 percent since the mid-1980s, began to recover, with the annual growth rate stabilizing at about 5 percent in the three years to 1997/98. In the policy area, the 1994 devaluation was accompanied by tax and trade reforms.

International Monetary Fund. Research Dept.


After a deep global recession, economic growth has turned positive, as wide-ranging public intervention has supported demand and lowered uncertainty and systemic risk in financial markets. Nonetheless, the recovery is expected to be slow, as financial systems remain impaired, support from public policies will gradually have to be withdrawn, and households in economies that suffered asset price busts will continue to rebuild savings. Risks to the outlook remain on the downside. Premature exit from accommodative monetary and fiscal policies is a particular concern because the policy-induced rebound might be mistaken for the beginning of a strong recovery. The key requirement remains to restore financial sector health while maintaining supportive macroeconomic policies until the recovery is on a firm footing. At the same time, policymakers need to begin preparing for an orderly unwinding of extraordinary levels of public intervention. Policies also need to facilitate a rebalancing of global demand, because economies that experienced asset price busts will need to raise saving rates, and there is a need to bolster potential growth in advanced economies, which has suffered as a result of the major financial shocks. Rising unemployment and setbacks to progress in poverty reduction pose social challenges that also must be addressed.

International Monetary Fund. Research Dept.


The global economy seems to be on the verge of recovery. The advanced economies, hit particularly hard by financial crises and the collapse in world trade, are showing signs of stabilization, driven mainly by an unprecedented public policy response. The shape of the recoveries will vary, however, with economies that suffered financial crises likely to experience weaker recoveries than those that were affected mainly by the collapse in global demand. The rebound in emerging and other developing economies is being led by a resurgence in Asia, most notably in China and India, fuelled by policy stimulus and a turn in the global manufacturing cycle. Other emerging economies are benefiting from commodity priceincreases, as we11 as from policy frameworks that are stronger than during previous crises. However, recovery in the Commonwealth of Independent States (CIS) and emerging Europe is likely to be difficult, especially for economies most affected by sharply falling capital flows and domestic financial sector turmoil.