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World Shocks, World Prices, and Business Cycles: An Empirical Investigation

In: NBER International Seminar on Macroeconomics 2016

Author

Listed:
  • Andrés Fernández
  • Stephanie Schmitt-Grohé
  • Martín Uribe

Abstract

SVAR models that include a single world price (such as the terms-of-trade) predict that world shocks explain a small fraction of movements in domestic output (typically less than 10 percent). This paper presents an empirical framework in which multiple commodity prices transmit world disturbances. Estimates on a panel of 138 countries over the period 1960-2015 indicate that world shocks explain on average 33 percent of output fluctuations in individual economies. This figure doubles when the model is estimated on post-2000 data. The findings reported here suggest that one-world-price specifications significantly underestimate the importance of world shocks for domestic business cycles.
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Suggested Citation

  • Andrés Fernández & Stephanie Schmitt-Grohé & Martín Uribe, 2016. "World Shocks, World Prices, and Business Cycles: An Empirical Investigation," NBER Chapters, in: NBER International Seminar on Macroeconomics 2016, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberch:13826
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    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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