Commodity-driven Macroeconomic Fluctuations: Does Size Matter?

IMF Working Papers, October 14, 2025

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Authors: Patricia Gomez-Gonzalez, Maximiliano Jerez-Osses, Vida Maver, Jean-Marc Natal, Jorge Alberto Miranda Pinto
Published: October 14, 2025
Series: IMF Working Papers
DOI: https://doi.org/10.5089/9798229029919.001

Commodities play a central yet often underappreciated role in shaping macroeconomic fluctuations across both advanced economies (AEs) and emerging market and developing economies (EMDEs), with the latter exhibiting greater volatility.
The paper examines how the domestic interconnectedness of the commodity sector conditions the transmission of commodity price shocks.
Rather than focusing only on sectoral size, the analysis emphasizes production linkages, measured by the network-adjusted value-added share (NAVAS) of the commodity sector.
Empirical evidence using panel local projections for OECD countries shows:
- Greater interconnectedness amplifies the positive effects of terms-of-trade gains on consumption.
- Greater interconnectedness mitigates the negative effects of terms-of-trade declines on consumption.

Key measure: network-adjusted value-added share (NAVAS) of the commodity sector, capturing production linkages and domestic interconnectedness.
Empirical strategy: panel local projections applied to OECD countries to assess the conditional propagation of commodity price shocks by NAVAS.

A small open economy model with production networks is developed to interpret empirical results.
Model highlights:
- Commodity interconnectedness strengthens wealth channels.
- Commodity interconnectedness dampens real wage channels.
- The net effect of these channel interactions shapes the overall macroeconomic response to commodity price shocks.

Network structures matter for the propagation of commodity shocks and help explain the heightened volatility observed in EMDEs.
Emphasis shifts policy and analytical focus from sectoral size alone to the structure of production linkages embodied in NAVAS when assessing vulnerability and transmission of commodity shocks.