Sharing a Ride on the Commodities Roller Coaster: Common Factors in Business Cycles of Emerging Economies
IMF Working Papers, December 29, 2015
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- Sharing a Ride on the Commodities Roller Coaster: Common Factors in Business Cycles of Emerging Economies
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Bibliographic details
- Authors: Andrés Fernández, Andres Gonzalez, Diego Rodriguez
- Published: December 29, 2015
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513587677.001
Summary and main findings
- Fluctuations in commodity prices are an important driver of business cycles in small emerging market economies (EMEs).
- Commodity price fluctuations correlate strongly with the business cycle in EMEs.
- An estimated multi-country EME business cycle model with an embedded commodity sector assigns commodity shocks 42 percent of the variance in income.
- A considerable part of the contribution of commodity shocks to income variance is linked to a common dynamic factor across commodity prices.
- An amplification mechanism identified is a “spillover” effect from commodity prices to risk premia.
Model and methodology
- Multi-country EMEs’ business cycle model with an explicit commodity endowment sector.
- Exogenous fluctuations in commodity prices follow a common dynamic factor structure and coexist with other driving forces.
- Estimation approach referenced: Bayesian estimation (listed in keywords).
Detailed quantitative results and technical points
- Share of income variance attributed to commodity shocks: 42 percent.
- Document length: 60 pages.
- Publication series and identifiers:
- Working Paper No.: 2015/280
- Volume: 2015
- Issue: 280
- DOI: https://doi.org/10.5089/9781513587677.001
- Stock No.: WPIEA2015280
- ISBN: 9781513587677
- ISSN: 1018-5941
- Authors: Andrés Fernández, Andres Gonzalez, Diego Rodriguez
- Publication date on page: December 29, 2015
Implications and interpretation
- Commodity price movements—particularly those driven by common factors across commodities—play a central role in EME business cycle fluctuations.
- Risk premia react to commodity price movements, creating an additional amplification channel for the impact of commodity shocks on income.
The views expressed are those of the author(s) and do not necessarily represent those of the IMF; this Working Paper describes research in progress.