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Trade in Commodities and Business Cycle Volatility

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Abstract

This paper studies the role of differences in the patterns of production and international trade on the business cycle volatility of emerging and developed economies. We study a multi-sector small open economy in which firms produce and trade commodities and manufactures. We estimate the model to match key cross-sectional and time-series differences across countries. Emerging economies run trade surpluses in commodities and trade deficits in manufactures, while sectoral trade flows are balanced in developed economies. We find that these differences amplify the response of emerging economies to commodity price fluctuations. We show evidence consistent with this mechanism using cross-country data.

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  • David Kohn & Fernando Leibovici & Hakon Tretvoll, 2018. "Trade in Commodities and Business Cycle Volatility," Working Papers 2018-5, Federal Reserve Bank of St. Louis.
  • Handle: RePEc:fip:fedlwp:2018-005
    DOI: 10.20955/wp.2018.005
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    Cited by:

    1. Vincenzo Quadrini, 2020. "The Impact of Industrialized Countries’ Monetary Policy on Emerging Economies," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 68(3), pages 550-583, September.
    2. Ridwan Karim & Andrey Stoyanov, 2020. "Output volatility, composition of trade, and transmission of economic shocks across countries," Review of International Economics, Wiley Blackwell, vol. 28(3), pages 626-655, August.
    3. Alejandro Torres García & Laura Wberth Escobar, 2018. "Commodity Prices Shocks and the Balance Sheet Effect in Latin America," Documentos de Trabajo CIEF 016362, Universidad EAFIT.
    4. Danilo Leiva-Leon & Gabriel Perez-Quiros & Eyno Rots, 2020. "Real-time weakness of the global economy: a first assessment of the coronavirus crisis," Working Papers 2015, Banco de España.
    5. Drechsel, Thomas & McLeay, Michael & Tenreyro, Silvana, 2019. "Monetary policy for commodity booms and busts," CEPR Discussion Papers 14030, C.E.P.R. Discussion Papers.

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    More about this item

    Keywords

    International business cycles; output volatility; emerging economies;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • 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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