Sharing a Ride on the Commodities Roller Coaster: Common Factors in Business Cycles of Emerging Economies
December 29, 2015
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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
Pages:
60
Volume:
2015
DOI:
Issue:
280
Series:
Working Paper No. 2015/280
Stock No:
WPIEA2015280
ISBN:
9781513587677
ISSN:
1018-5941
