Description

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.

More publications in this series: Working Papers

More publications by: Andres Fernandez ; Andres Gonzalez ; Diego Rodriguez