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


Portada Borradores de Economía 2015
Series: 
Working Papers
Number: 
915
18
November
2015
Author(s) / Editor(s): 
Andrés Fernández
Andrés González
Diego Rodríguez
Publishing House: 
Banco de la República
JEL Classification: 

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.

 

The series Borradores de Economía is published by the Economic Studies Department at the Banco de la República (Central Bank of Colombia). The works published are provisional, and their authors are fully responsible for the opinions expressed in them, as well as for possible mistakes. The opinions expressed herein are those of the authors and do not necessarily reflect the views of Banco de la República or its Board of Directors.

Category / Classification: 
Documentos en elaboración

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