Arroyo Marioli F. and Vegh C. (2025): “Fiscal Procyclicality in Commodity Exporting Countries: How Much Does It Pour and Why?”. American Economic Journal: Economic Policy (forthcoming).
A large literature has documented that fiscal policy is procyclical in emerging markets/developing countries and acyclical/countercyclical in advanced economies. This paper analyzes fiscal procyclicality in commodity-exporting countries. The paper makes two novel contributions. First, based on the "when it rains, it pours" phenomenon (that is, contractionary fiscal policy amplifies the business cycle), the paper shows that, on average, government spending magnifies the business cycle by 21 percent of the initial drop in output following a fall in commodity prices. Second, the paper estimates the welfare costs of fiscal procyclicality at 36 percent of the commodity business cycle.
Arroyo Marioli F., Fatas A., and Vasishtha G. (2024): “Fiscal policy volatility and growth in emerging markets and developing economies”. International Review of Economics and Finance. Volume 92, 2024, Pages 758-777, ISSN 1059-0560.
This paper studies the volatility of fiscal policy in a large sample of countries with a focus on emerging markets and developing economies and commodity exporters over 1990–2021. The findings show that fiscal policy has been more volatile in emerging markets and developing economies than in advanced economies, and in commodity exporters relative to non-commodity exporters over this period. The degree of commodity dependence, and institutional and policy variables can explain a large percentage of the cross-country variation in volatility. The existence of fiscal rules, a more liberalized capital account, and more flexible exchange rates are all associated with lower fiscal policy volatility. The paper also shows the negative macroeconomic consequences of this additional volatility on economic growth, finding that, over a 30-year period, it can explain 8 percent of the income gap between the emerging markets and developing economies and advanced economies in the sample.
Arroyo Marioli, Francisco and Bullano, Francisco and Kucinskas, Simas and Rondón-Moreno, Carlos, Tracking R of COVID-19: A New Real-Time Estimation Using the Kalman Filter (2021). Plos One. https://doi.org/10.1371/journal.pone.0244474.
We develop a new method for estimating the effective reproduction number of an infectious disease (R) and apply it to track the dynamics of COVID-19. The method is based on the fact that in the SIR model, R is linearly related to the growth rate of the number of infected individuals. This time-varying growth rate is estimated using the Kalman filter from data on new cases. The method is very easy to apply in practice, and it performs well even when the number of infected individuals is imperfectly measured, or the infection does not follow the SIR model. Our estimates of R for COVID-19 for 124 countries across the world are provided in an interactive online dashboard, and they are used to assess the effectiveness of non-pharmaceutical interventions in a sample of 14 European countries.
Policymakers and researchers describe the COVID-19 epidemics by waves without a common vocabulary on what constitutes an epidemic wave, either in terms of a working definition or operationalization, causing inconsistencies and confusions. A working definition and operationalization can be helpful to characterize and communicate about epidemics. We propose a working definition of epidemic waves in the ongoing COVID-19 pandemic and an operationalization based on the public data of the effective reproduction number R. Our operationalization characterizes the numbers and durations of waves (upward and downward) in 178 countries and reveals patterns that can enable healthcare organizations and policymakers to make better description and assessment of the COVID crisis to make more informed resource planning, mobilization, and allocation temporally in the continued COVID-19 pandemic.
Arroyo Marioli F. : ”Old crop versus new crop prices: Explaining the correlation”. Journal of Future Markets.
Although competitive storage theory has proven successful in explaining many patterns for commodity prices, some features are not understood. While standard models predict low correlation between future prices with delivery dates before and after the harvest, the data suggest otherwise. To correct this, I assume that harvests appear continuously rather than at a single moment. This addition to the standard model allows me to link preharvest and postharvest markets to the same source of supply, and hence obtain the empirically observed high correlation. Empirical evidence also suggests that my assumptions are realistic. Results are robust to different parameter specifications.
Arroyo Marioli, F., Becerra J.S, and Solorza M.: “The Credit Channel Through the Lens of a Semi-Structural Model”. Latin American Journal of Central Banking, Volume 3, Issue 2, 2022, 100056, ISSN 2666-1438.
In this paper, we estimate a semi-structural model with a banking sector for the Chilean economy. Our innovation consists of incorporating a system of equations that reflects the dynamics of credit, interest rate spreads, and loan-loss provisions to the Central Bank of Chile’s semi-structural model (modelo semi-estructural de proyección). We estimate the model and analyze the macroeconomic effects of incorporating this sector. We find that the banking sector plays a role in accelerating the business cycle through lower spreads and procyclical credit supply, in contrast to its counter-cyclical role in the COVID-19 crisis. Additionally, we find that credit growth can explain about 0.3 pp of total output gap variation on average. Moreover, we find that in episodes of severe stress, this gap can grow to 1.9 pp, as it did during the COVID-19 pandemic. We also identify a credit multiplier of up to 0.06 pp of GDP for each 1 pp of growth in commercial credit. Our results suggest not only that these nonconventional policies through the credit channel can be useful but also that our model can be used for evaluation purposes.
The semi-structural gap forecasting (MSEP) model is the new gap model used by the Central Bank of Chile to forecast key macroeconomics variables. This document provides the technical details of this model including equations, estimated parameters and transmission mechanisms. The model has been improved relative to its initial version along several dimensions: (i) The parameters have been estimated with Bayesian methods; (ii) it separates core inflation into tradable and non-tradable inflation, linking each component to fundamental drivers; (iii) it explicitly specifies the empirical relationships between terms of trade and real exchange rate. We found that for a typical monetary policy shocks there are similar effects in comparison with the former MEP model.
What explains the surge and plunge commodity markets have undergone in the past 20 years? Are speculators to be blamed? Do prices reflect full information? These are the main questions addressed in this paper, in the context of the corn market. This paper formulates and calibrates two quantitative models of corn prices formation. The first model is designed to explain prices in the long run (annual frequency), while the second model applies to prices in the short run (quarterly frequency). For the long-run analysis, the paper finds that deviations of theoretical prices from observed ones are very small after 1996, and before 1996 they can be explained by government intervention. For the short-run analysis, the model is designed to mimic the typical seasonality seen in agricultural markets, incorporate supply and demand shocks as well as news shocks, and allows for speculative storage decisions. The paper finds that demand and supply fundamentals can account for around 52 percent of past price changes from 1975 to 2016. The model also estimates the impact of information shocks to explain an additional 18 percent of quarterly deviations. Finally, it finds that at least 30 percent of short-run price changes seem to have explanations other than supply or demand fundamentals or information, demonstrating that when analyzing quarterly data, prices do not always closely track fundamentals.
Arroyo Marioli F. and Letelier F. : "Commodities Fundamental Model". Central bank of Chile Working Paper Series. (No 918).
The price of copper is fundamental for the Chilean economy and, thus, for the Central Bank of Chile’s forecasts. The goal of this document is to provide a theoretical tool that allows not only to understand the determinants of the evolution of copper price but also to forecast it. Likewise, the model and methodology used is applicable to any storable commodity, assuming that supply, demand, price and inventories data are always available. We find that for the short run, temporary shocks play a minor role, whereas the USD Broad index and expectations contribute significantly. Also, in the long run, permanent demand and supply shocks seem to explain the major dynamics. We also present suggestive evidence that imprecise information can explain short-run volatility in expectations.
Almost two-thirds of emerging market and developing economies rely heavily on resource sectors for economic activity, fiscal and export revenues. In these economies, economic planning requires sound baseline projections for the global prices of the commodities they rely on and a sense of the risks around such baseline projections. This paper presents a model suite to prepare well-founded forecasts for the global prices for oil and six industrial metals (aluminum, copper, lead, nickel, tin, and zinc). The model suite adapts six approaches used in the literature and tests their forecast performance. Broadly speaking, futures prices or bivariate correlations performed well at short horizons, and consensus forecasts and a large-scale macroeconometric model performed well at long horizons. The strength of Bayesian vector autoregression models lies in generating forecast scenarios. The sizable forecast error bands generated by the model suite highlight the need for policy makers to engage in careful contingency planning for higher or lower prices.
Arroyo Marioli F., Carrera F., and Richardson G.: “Central Banks, Liquidity, and Bargaining: Theory and Evidence from the Fed’s Founding”.
Agnolucci P., Arroyo Marioli F., and Yilmaz K.: “Global Commodity Market Interconnectedness: Dynamics, Drivers, and Policy Implications”.
Arroyo Marioli F.: “Apples and Oranges: The Problems with Mixing Government Spending into GDP”.
“Global Economic Prospects Report – Latin America and the Caribbean Chapter”, Jan 2024-2025, June 2023-2024-2025 editions. World Bank.
“Commodity Markets Outlook”, Oct 2021, Apr 2022, Oct 2022. World Bank.
“Shocks de demanda, inflación y el rol de los inventarios”. Monetary Policy Report, Dec 2020. Central Bank of Chile.
“Perspectivas Para el COVID-19 en el Mundo”. Monetary Policy Report, June 2020. Central Bank of Chile.