Commodities fluctuations, cross border flows and financial innovation: A stock-flow analysis

Abstract

At the beginning of the 2000s, Latin America countries experienced rising commodities prices and, in turn, foreign investors shifted part of their portfolio composition toward the region. Unlike past episodes, more integrated financial markets allowed international players to invest in a wider range of financial instruments, usually related to composite commodity indexes. We investigate the macroeconomic implications of such innovative practices, focusing in particular on currency swings, by adopting a stock-flow consistent (SFC) framework. The element of novelty of our contribution consists in depicting a financial sector, which issues Commodity-Linked Notes (CLNs) to be sold to households in the developed country.