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

By Andrés Fernández, Andres Gonzalez, Diego Rodriguez

December 29, 2015

Preview Citation

Format: Chicago

Andrés Fernández, Andres Gonzalez, and Diego Rodriguez. Sharing a Ride on the Commodities Roller Coaster: Common Factors in Business Cycles of Emerging Economies, (USA: International Monetary Fund, 2015) accessed November 8, 2024

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.

Subject: Commodities, Commodity price fluctuations, Commodity price indexes, Commodity price shocks, Commodity prices, Prices

Keywords: Bayesian estimation, Business cycles, Capital goods, Commodity endowment sector, Commodity price, Commodity price fluctuations, Commodity price indexes, Commodity price shocks, Commodity prices, Commodity production, Commodity shock, Common factors, Consumption good, Dynamic stochastic equilibrium models, Emerging economies, Endowment sector, Exchange rate, Export share, Global, Shock process, Spot price, Standard deviation, Time series, WP

Publication Details

Pages:

60
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/280
Stock No:

WPIEA2015280
ISBN:

9781513587677
ISSN:

1018-5941

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