Advanced Search
MyIDEAS: Login to save this paper or follow this series

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

Contents:

Author Info

  • Matthias Gubler

    ()
    (Faculty of Business and Economics, University of Basel, Switzerland)

  • Matthias S. Hertweck

    ()
    (Department of Economics, University of Konstanz, Germany)

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.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.wiwi.uni-konstanz.de/workingpaperseries/WP_Gubler-Hertweck-3-11.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Department of Economics, University of Konstanz in its series Working Paper Series of the Department of Economics, University of Konstanz with number 2011-03.

as in new window
Length: 43 pages
Date of creation: 25 Mar 2011
Date of revision:
Handle: RePEc:knz:dpteco:1103

Contact details of provider:
Postal: D-78457 Konstanz
Phone: +49-7531-88-2566/2565
Fax: +49-7531-88-4135
Web page: http://www.wiwi.uni-konstanz.de/fb
More information through EDIRC

Order Information:
Web: http://www.wiwi.uni-konstanz.de/fb

Related research

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

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Ordóñez, Javier & Sala, Hector & Silva, José I., 2010. "Oil Price Shocks and Labor Market Fluctuations," IZA Discussion Papers 5096, Institute for the Study of Labor (IZA).
  2. Stephanie Schmitt-Grohe & Martin Uribe, 2011. "Business Cycles With A Common Trend in Neutral and Investment-Specific Productivity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(1), pages 122-135, January.
  3. Mark Gertler & Luca Sala & Antonella Trigari, 2008. "An Estimated Monetary DSGE Model with Unemployment and Staggered Nominal Wage Bargaining," Working Papers 341, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  4. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 1994. "The effects of monetary policy shocks: evidence from the Flow of Funds," Working Paper Series, Macroeconomic Issues, Federal Reserve Bank of Chicago 94-2, Federal Reserve Bank of Chicago.
  5. David Altig & Lawrence Christiano & Martin Eichenbaum & Jesper Linde, 2011. "Firm-Specific Capital, Nominal Rigidities and the Business Cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(2), pages 225-247, April.
  6. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," NBER Working Papers 2737, National Bureau of Economic Research, Inc.
  7. Jordi Galí & Pau Rabanal, 2004. "Technology Shocks and Aggregate Fluctuations," IMF Working Papers 04/234, International Monetary Fund.
  8. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 1997. "Long-Run Implications of Investment-Specific Technological Change," American Economic Review, American Economic Association, American Economic Association, vol. 87(3), pages 342-62, June.
  9. Kilian, Lutz & Murphy, Dan, 2010. "The Role of Inventories and Speculative Trading in the Global Market for Crude Oil," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7753, C.E.P.R. Discussion Papers.
  10. Matthew D. Shapiro & Mark W. Watson, 1988. "Sources of Business Cycle Fluctuations," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 870, Cowles Foundation for Research in Economics, Yale University.
  11. Enders, Zeno & Müller, Gernot & Scholl, Almuth, 2010. "How do Fiscal and Technology Shocks affect Real Exchange Rates? New Evidence for the United States," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7732, C.E.P.R. Discussion Papers.
  12. Julio J. Rotemberg & Michael Woodford, 1996. "Imperfect Competition and the Effects of Energy Price Increases on Economic Activity," NBER Working Papers 5634, National Bureau of Economic Research, Inc.
  13. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, Econometric Society, vol. 37(3), pages 424-38, July.
  14. Kilian, Lutz, 2006. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5994, C.E.P.R. Discussion Papers.
  15. GOSPODINOV, Nikolay & MAYNARD, Alex & PESAVENTO, Elena, 2009. "Sensitivity of Impulse Responses to Small Low Frequency Co-Movements : Reconciling the Evidence on the Effects of Technology Shocks," Cahiers de recherche, Centre interuniversitaire de recherche en économie quantitative, CIREQ 03-2009, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  16. Smets, Frank & Wouters, Raf, 2007. "Shocks and frictions in US business cycles: a Bayesian DSGE approach," Working Paper Series, European Central Bank 0722, European Central Bank.
  17. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 1(1), pages 19-46, January.
  18. Gali, J., 1996. "Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations?," Working Papers, C.V. Starr Center for Applied Economics, New York University 96-28, C.V. Starr Center for Applied Economics, New York University.
  19. Fernald, John G., 2007. "Trend breaks, long-run restrictions, and contractionary technology improvements," Journal of Monetary Economics, Elsevier, Elsevier, vol. 54(8), pages 2467-2485, November.
  20. Edelstein Paul & Kilian Lutz, 2007. "The Response of Business Fixed Investment to Changes in Energy Prices: A Test of Some Hypotheses about the Transmission of Energy Price Shocks," The B.E. Journal of Macroeconomics, De Gruyter, De Gruyter, vol. 7(1), pages 1-41, November.
  21. Charles Evans & Jonas D. M. Fisher, 2011. "What are the implications of rising commodity prices for inflation and monetary policy?," Chicago Fed Letter, Federal Reserve Bank of Chicago, Federal Reserve Bank of Chicago, issue May.
  22. Kilian, Lutz, 2007. "The Economic Effects of Energy Price Shocks," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6559, C.E.P.R. Discussion Papers.
  23. A. Anzuini & M. J. Lombardi & P. Pagano, 2013. "The Impact of Monetary Policy Shocks on Commodity Prices," International Journal of Central Banking, International Journal of Central Banking, International Journal of Central Banking, vol. 9(3), pages 125-150, September.
  24. Lutz Kilian & Logan T. Lewis, 2011. "Does the Fed Respond to Oil Price Shocks?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 121(555), pages 1047-1072, 09.
  25. Mario Forni & Luca Gambetti, 2011. "Testing for Sufficient Information in Structural VARs," Working Papers 536, Barcelona Graduate School of Economics.
  26. Lawrence J. Christiano & Martin Eichenbaum & Robert Vigfusson, 2003. "What Happens After a Technology Shock?," NBER Working Papers 9819, National Bureau of Economic Research, Inc.
  27. di Pace, Federico & Faccini, Renato, 2010. "Deep habits and the cyclical behaviour of equilibrium unemployment and vacancies," Bank of England working papers, Bank of England 391, Bank of England.
  28. Hanson, Michael S., 2004. "The "price puzzle" reconsidered," Journal of Monetary Economics, Elsevier, Elsevier, vol. 51(7), pages 1385-1413, October.
  29. Kilian, Lutz & Vega, Clara, 2008. "Do Energy Prices Respond to U.S. Macroeconomic News? A Test of the Hypothesis of Predetermined Energy Prices," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7015, C.E.P.R. Discussion Papers.
  30. Lawrence J. Christiano & Martin Eichenbaum & Robert Vigfusson, 2004. "The Response of Hours to a Technology Shock: Evidence Based on Direct Measures of Technology," Journal of the European Economic Association, MIT Press, MIT Press, vol. 2(2-3), pages 381-395, 04/05.
  31. Ravn, Morten O. & Simonelli, Saverio, 2007. "Labour Market Dynamics and the Business Cycle: Structural Evidence for the United States," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6409, C.E.P.R. Discussion Papers.
  32. Gordon, Robert J., 1990. "The Measurement of Durable Goods Prices," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226304557, 01-2013.
  33. Hamilton, James D & Herrera, Ana Maria, 2004. "Oil Shocks and Aggregate Macroeconomic Behavior: The Role of Monetary Policy: Comment," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 36(2), pages 265-86, April.
  34. Bernanke, Ben S. & Gertler, Mark & Waston, Mark, 1997. "Systematic Monetary Policy and the Effects of Oil Price Shocks," Working Papers, C.V. Starr Center for Applied Economics, New York University 97-25, C.V. Starr Center for Applied Economics, New York University.
  35. Justiniano, Alejandro & Primiceri, Giorgio E. & Tambalotti, Andrea, 2008. "Investment Shocks and Business Cycles," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6739, C.E.P.R. Discussion Papers.
  36. Christopher J. Erceg & Luca Guerrieri, 2004. "Can Long-Run Restrictions Identify Technology Shocks?," Computing in Economics and Finance 2004, Society for Computational Economics 3, Society for Computational Economics.
  37. Susanto Basu, 1994. "Intermediate Goods and Business Cycles: Implications for Productivity and Welfare," NBER Working Papers 4817, National Bureau of Economic Research, Inc.
  38. Herrera, Ana María & Pesavento, Elena, 2009. "Oil Price Shocks, Systematic Monetary Policy, And The “Great Moderation”," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 13(01), pages 107-137, February.
  39. Abbritti, Mirko & Weber, Sebastian, 2010. "Labor market institutions and the business cycle Unemployment rigidities vs. real wage rigidities," Working Paper Series, European Central Bank 1183, European Central Bank.
  40. Edelstein, Paul & Kilian, Lutz, 2009. "How sensitive are consumer expenditures to retail energy prices?," Journal of Monetary Economics, Elsevier, Elsevier, vol. 56(6), pages 766-779, September.
  41. Jonas D. M. Fisher, 2006. "The Dynamic Effects of Neutral and Investment-Specific Technology Shocks," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 114(3), pages 413-451, June.
  42. Christopher A. Sims & Tao A. Zha, 1998. "Does monetary policy generate recessions?," Working Paper, Federal Reserve Bank of Atlanta 98-12, Federal Reserve Bank of Atlanta.
  43. Lawrence J. Christiano & Terry J. Fitzgerald, 2003. "The Band Pass Filter," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 435-465, 05.
  44. Robert J. Gordon, 1990. "The Measurement of Durable Goods Prices," NBER Books, National Bureau of Economic Research, Inc, number gord90-1, July.
  45. Christopher A. Sims, 1992. "Interpreting the Macroeconomic Time Series Facts: The Effects of Monetary Policy," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1011, Cowles Foundation for Research in Economics, Yale University.
  46. Christiane Baumeister & Gert Peersman, 2011. "The Role of Time-Varying Price Elasticities in Accounting for Volatility Changes in the Crude Oil Market," Working Papers, Bank of Canada 11-28, Bank of Canada.
  47. Lutz Kilian & Robert J. Vigfusson, 2011. "Are the responses of the U.S. economy asymmetric in energy price increases and decreases?," Quantitative Economics, Econometric Society, Econometric Society, vol. 2(3), pages 419-453, November.
  48. Lutz Kilian, 1998. "Small-Sample Confidence Intervals For Impulse Response Functions," The Review of Economics and Statistics, MIT Press, vol. 80(2), pages 218-230, May.
  49. Fabio Canova & David Lopez-Salido & Claudio Michelacci, 2010. "The effects of technology shocks on hours and output: a robustness analysis," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 25(5), pages 755-773.
  50. Robert B. Barsky & Lutz Kilian, 2001. "Do We Really Know that Oil Caused the Great Stagflation? A Monetary Alternative," NBER Working Papers 8389, National Bureau of Economic Research, Inc.
  51. Neville Francis & Valerie A. Ramey, 2009. "Measures of per Capita Hours and Their Implications for the Technology-Hours Debate," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 41(6), pages 1071-1097, 09.
  52. Juan Pablo Medina & Claudio Soto, 2005. "Oil Shocks and Monetary Policy in an Estimated DSGE Model for a Small Open Economy," Working Papers Central Bank of Chile, Central Bank of Chile 353, Central Bank of Chile.
  53. Haroon Mumtaz & Francesco Zanetti, 2012. "Neutral Technology Shocks And The Dynamics Of Labor Input: Results From An Agnostic Identification," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(1), pages 235-254, 02.
  54. DiCecio, Riccardo, 2009. "Sticky wages and sectoral labor comovement," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 33(3), pages 538-553, March.
  55. Lucas, Robert E, Jr, 1980. "Two Illustrations of the Quantity Theory of Money," American Economic Review, American Economic Association, American Economic Association, vol. 70(5), pages 1005-14, December.
  56. Lutz Kilian, 1998. "Confidence intervals for impulse responses under departures from normality," Econometric Reviews, Taylor & Francis Journals, Taylor & Francis Journals, vol. 17(1), pages 1-29.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Gospodinov, Nikolay & Jamali, Ibrahim, 2013. "Monetary policy surprises, positions of traders, and changes in commodity futures prices," Working Paper, Federal Reserve Bank of Atlanta 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, Springer, vol. 44(2), pages 685-700, April.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:knz:dpteco:1103. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gundula Hadjiani).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.