Working Paper

Trade in Commodities and Business Cycle Volatility


Abstract: This paper studies the role of differences in the patterns of production and international trade on the business cycle volatility of emerging and developed economies. We study a multi-sector small open economy in which firms produce and trade commodities and manufactures. We estimate the model to match key cross-sectional and time-series differences across countries. Emerging economies run trade surpluses in commodities and trade deficits in manufactures, while sectoral trade flows are balanced in developed economies. We find that these differences amplify the response of emerging economies to commodity price fluctuations. We show evidence consistent with this mechanism using cross-country data.

Keywords: International business cycles; output volatility; emerging economies;

JEL Classification: E32; F4; F41; F44;

https://doi.org/10.20955/wp.2018.005

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Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2019-07-10

Number: 2018-5

Pages: 49 pages