Commodity-price volatility and macroeconomic spillovers: Evidence from nine emerging markets

• We apply Multivariate GARCH models to monthly commodity-price and macroeconomic data for nine countries.
• We find evidence of spillovers between commodity prices, exchange rates, output, inflation, and interest rates.
• Our results differ, particularly for countries with different degrees of industrialization and diversification.
• Russia, surprisingly, is relatively insulated from oil-price volatility.

The recent decade has witnessed wild swings in global commodity prices, with large increases preceding the Global Financial Crisis and steep declines following the crash. Many emerging markets find themselves destabilized by these fluctuations, not only when price increases lead to currency appreciations and reduced competitiveness, but also when price decreases cause capital outflows and deteriorations in the balance of payments. This study examines the volatility processes of six major commodity prices, before applying Multivariate GARCH analysis to examine spillovers among important commodity prices and output, exchange rates, interest rates and inflation in major emerging markets. While each commodity and each country behaves differently, we find that Chile is most closely tied to the copper price, and Indonesia to oil and tin, while neighbors such as Brazil and the Philippines are less affected. Perhaps surprisingly, Russia is found to be highly insulated from fluctuations in world oil prices.