Commodity Exports, Financial Frictions and International Spillovers

RePEc Short ID: pmo1014
ORCID iD: 0000-0002-3843-1100

Houssa, Romain; Mohimont, Jolan; Otrok, Christopher

doi:10.24149/gwp419

Working Paper

Commodity Exports, Financial Frictions and International Spillovers

Abstract: This paper offers a solution to the international co-movement puzzle found in open-economy macroeconomic models. We develop a small open-economy (SOE) dynamic stochastic general equilibrium (DSGE) model describing three endogenous channels that capture spillovers from the world to a commodity exporter: a world commodity price channel, a domestic commodity supply channel and a financial channel. We estimate our model with Bayesian methods on two commodity-exporting SOEs, namely Canada and South Africa. In addition to explaining international business cycle synchronization, the new model attributes an important fraction of business cycle fluctuations to foreign shocks in the SOEs.

Keywords: international spillovers; commodities; financial frictions; small open economy; DSGE; Bayesian; monetary policy;

JEL Classification: E3; E43; E52; C51; C33;

https://doi.org/10.24149/gwp419