Sharing a Ride on the Commodities Roller Coaster: Common Factors in Business Cycles of Emerging Economies

Author/Editor:

Andrés Fernández ; Andres Gonzalez ; Diego Rodriguez

Publication Date:

December 29, 2015

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Fluctuations in commodity prices are an important driver of business cycles in small emerging market economies (EMEs). We document how these fluctuations correlate strongly with the business cycle in EMEs. We then embed a commodity sector into a multi-country EMEs’ business cycle model where exogenous fluctuations in commodity prices follow a common dynamic factor structure and coexist with other driving forces. The estimated model assigns to commodity shocks 42 percent of the variance in income, of which a considerable part is linked to the common factor. A further amplification mechanism is a ”spillover” effect from commodity prices to risk premia.

Series:

Working Paper No. 2015/280

Subject:

Commodities Commodity price fluctuations Commodity price indexes Commodity price shocks Commodity prices Prices

English

Publication Date:

December 29, 2015

ISBN/ISSN:

9781513587677/1018-5941

Stock No:

WPIEA2015280

Pages:

60

Please address any questions about this title to publications@imf.org