Time-varying effects of commodities prices in the Bolivian economy

Bolivia is a small, open and commodity exporter economy, so it has been exposed to different external shocks, mainly to fluctuations in commodity prices. According to the literature, the effects of international commodity prices are not complete and change over time. The objective of this document is to analyze if there is a change in the relationship between commodity prices and the main local macroeconomic variables, given that the Bolivian economy went through structural changes in the last two decades. In that sense, this paper uses a Bayesian time-varying parameter structural vector auto-regressive model (TVP-SVAR) with stochastic volatility. The results show that the effect of the international oil price on economic growth decreased between 2000 and 2018 due to a volume effect (lower external demand) as a value effect (low oil prices). The pass-through of international food prices to domestic inflation is significant and shows a slight decrease since 2015 due to a moderation in the growth rate of food imports. Finally, the nominal exchange rate appreciated initially to mitigate the imported inflationary pressures and, subsequently, thanks to the greater income of foreign currency to the economy, also its degree of response decreased over time due to the lower effect on economic growth and reduced external inflationary pressures.