External Commodity Shocks and the Insulating Role of Fiscal Policy on Real Output: Evidence from a Commodity-Exporting Economy 

Vol: 
57/2023
Author name: 
Pontines V
Luvsannyam D
Year: 
2023
Month: 
November
Abstract: 

This study investigates the role of fiscal policy in stabilising resource-rich economies vulnerable to external commodity shocks, with a specific focus on Mongolia. We analyse the effects of various external commodity shocks on Mongolia’s economy and find that fiscal policy’s responses to these shocks have been counter-cyclical. Additionally, we construct policy counterfactuals to examine the insulating role of fiscal policy on real domestic output. The findings reveal that counter-cyclical fiscal measures, particularly government expenditure, and to a lesser extent, government revenue, played an important role in Mongolia’s response to external commodity shocks.

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