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Commodity Price Shocks and the Business Cycle: Structural Evidence for the U.S

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  • Matthias Gubler

    ()

  • Matthias S. Hertweck

    ()
    (University of Basel)

Abstract

This paper develops a 9-dimensional SVAR to investigate the sources of the U.S. business cycle. We extend the standard set of identified shocks to include unexpected changes in commodity prices. Our main result is that commodity price shocks are a very important driving force of macroeconomic fluctuations, second only to investment-specific technology shocks. In particular, we find that commodity price shocks explain a large share of cyclical movements in inflation. Neutral technology shocks and monetary policy shocks seem less relevant at business cycle frequencies. The impulse response dynamics provide support for medium-scale DSGE models, but not for strong price rigidities.

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Paper provided by Faculty of Business and Economics - University of Basel in its series Working papers with number 2011/05.

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Date of creation: 2011
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Handle: RePEc:bsl:wpaper:2011/05

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Keywords: business cycles; commodity price shocks; structural VAR;

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Cited by:
  1. Gospodinov, Nikolay & Jamali, Ibrahim, 2013. "Monetary policy surprises, positions of traders, and changes in commodity futures prices," Working Paper 2013-12, Federal Reserve Bank of Atlanta.
  2. Radoslaw Kurach, 2012. "Stocks, Commodities and Business Cycle Fluctuations – Seeking the Diversification Benefits," Equilibrium, Uniwersytet Mikolaja Kopernika, vol. 7, pages 101-116.
  3. Jun Nagayasu, 2013. "A dynamic factor approach to domestic capital mobility," Empirical Economics, Springer, vol. 44(2), pages 685-700, April.

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