TY  - JOUR
AU  - Drechsel, Thomas
AU  - Tenreyro, Silvana
TI  - Commodity Booms and Busts in Emerging Economies
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 23716
PY  - 2017
Y2  - August 2017
DO  - 10.3386/w23716
UR  - http://www.nber.org/papers/w23716
L1  - http://www.nber.org/papers/w23716.pdf
N1  - Author contact info:
Thomas Drechsel
3114 Tydings Hall
University of Maryland
United States
United States
College Park, MD 20742
E-Mail: drechsel@umd.edu

Silvana Tenreyro
London School of Economics
Department of Economics
Houghton St
St. Clement's Building, S.600
London, WC2A 2AE
United Kingdom
Tel: 44-2079556018
E-Mail: S.Tenreyro@lse.ac.uk
M1  - published as Thomas Drechsel, Silvana Tenreyro. "Commodity Booms and Busts in Emerging Economies," in Jeffrey Frankel, Hélène Rey, and Charles Engel, organizers, "NBER International Seminar on Macroeconomics 2017" Journal of International Economics (Elsevier), volume 112 (2018)

M3  - presented at "International Seminar on Macroeconomics", June 30 - July 1, 2017
AB  - Emerging economies, particularly those dependent on commodity exports, are prone to highly disruptive economic cycles. This paper proposes a small open economy model for a net commodity exporter to quantitatively study the triggers of these cycles. The economy consists of two sectors, one of which produces commodities with prices subject to exogenous international fluctuations. These fluctuations affect both the competitiveness of the economy and its borrowing terms, as higher commodity prices are associated with lower spreads between the country's borrowing rate and world interest rates. Both effects jointly result in strongly positive effects of commodity price increases on GDP, consumption and investment, and a negative effect on the total trade balance. Furthermore, they generate excess volatility of consumption over output and a large volatility of investment. The model structure nests various candidate sources of shocks proposed in previous work on emerging economy business cycles. Estimating the model on Argentine data, we find that the contribution of commodity price shocks to fluctuations in post-1950 output growth is in the order of 38%. In addition, commodity prices account for around 42% and 61% of the variation in consumption and investment growth, respectively. We find transitory productivity shocks to be an important driver of output fluctuations, exceeding the contribution of shocks to the trend, which is smaller, although not negligible.
ER  -