, Volume 24, Issue 4, pp 677-694

Commodity Prices, Inflationary Pressures, and Monetary Policy: Evidence from BRICS Economies

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Abstract

We assess the transmission of monetary policy and the impact of fluctuations in commodity prices on the real economy for the five biggest and fastest growing emerging market economies: Brazil, Russia, India, China and South Africa (BRICS). Using modern econometric techniques, we show that a monetary policy contraction has a negative effect on output, suggesting that it can lean against unexpected macroeconomic shocks even when the financial markets are not well-developed in this group of countries. We also uncover the importance of commodity price shocks, which lead to a rise in inflation and demand an aggressive behaviour from central banks towards inflation stabilisation.

We gratefully acknowledge the constructive comments made by the Editor-in-chief, George S. Tavlas, and two anonymous referees of this journal.