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Sharing a Ride on the Commodities Roller Coaster: Common Factors in Business Cycles of Emerging Economies

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  • Andrés Fernández

    ()

  • Andrés González

    ()

  • Diego Rodríguez

    ()

Abstract

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.

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  • Andrés Fernández & Andrés González & Diego Rodríguez, 2015. "Sharing a Ride on the Commodities Roller Coaster: Common Factors in Business Cycles of Emerging Economies," BORRADORES DE ECONOMIA 014054, BANCO DE LA REPÚBLICA.
  • Handle: RePEc:col:000094:014054
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    Cited by:

    1. López-Martín Bernabé & Leal-Ordoñez Julio C. & Martínez André, 2017. "Commodity Price Risk Management and Fiscal Policy in a Sovereign Default Model," Working Papers 2017-04, Banco de México.
    2. Chang, Roberto & Fernández, Andrés & Gulan, Adam, 2017. "Bond finance, bank credit, and aggregate fluctuations in an open economy," Journal of Monetary Economics, Elsevier, vol. 85(C), pages 90-109.
    3. Francis X. Diebold & Laura Liu & Kamil Yilmaz, 2018. "Commodity Connectedness," Central Banking, Analysis, and Economic Policies Book Series,in: Enrique G. Mendoza & Ernesto Pastén & Diego Saravia (ed.), Monetary Policy and Global Spillovers: Mechanisms, Effects and Policy Measures, edition 1, volume 25, chapter 4, pages 097-136 Central Bank of Chile.
    4. Wataru Miyamoto & Thuy Lan Nguyen, 2017. "Business Cycles In Small Open Economies: Evidence From Panel Data Between 1900 And 2013," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 58, pages 1007-1044, August.

    More about this item

    Keywords

    Emerging economies; business cycles; commodity prices; common factors; Bayesian estimation; dynamic stochastic equilibrium models.;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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