Countries with strong governance weather commodity price shocks better, study finds.
Countries with higher food shares in their consumer price index, more reliance on fuel, and higher inflation levels are more likely to experience inflation from commodity price shocks. Countries with independent central banks and good governance tend to handle these shocks better. Inflation targeting regimes don't seem to have a big impact, especially during the 2008 food price shock. Factors like trade openness, financial development, dollarization, and labor market flexibility don't significantly affect how domestic inflation responds to international commodity price shocks.