Lucie Stoppok (University of Kiel & Kiel Institute)
How do commodity price movements affect sovereign default risk over the long-run? Using a novel dataset covering 41 countries and 42 raw commodities, we take a comprehensive long-run view to shed light on this so far understudied relationship between commodity risk and sovereign risk across 150 years. We create a novel country-specific commodity price index that allows us to take advantage of countries’ variation in their commodity export composition. Our results are twofold: First, commodity price fluctuations have been a persistent and a significant driver of sovereign borrowing costs for commodity export dependent countries over the last one and a half centuries. The only changing factor is the export composition: while in history agricultural price movements were the main driver behind this relationship, nowadays it is metals and energy.
Angélica Domı́nguez-Cardoza (University of Kiel & Bundesbank) – Josefin Meyer (Kiel Institute) – Lucie Stoppok (University of Kiel & Kiel Institute)
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