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Commodity Price Shocks and the Business Cycle: Structural Evidence for the U.S

Author

Listed:
  • Gubler, Matthias

    (University of Basel)

  • Hertweck, Matthias Sebastian
Abstract
This paper develops a 9-dimensional SVAR to investigate the sources of the U.S. business cycle. We extend the standard set of identified shocks to include unexpected changes in commodity prices. Our main result is that commodity price shocks are a very important driving force of macroeconomic fluctuations, second only to investment-specific technology shocks. In particular, we find that commodity price shocks explain a large share of cyclical movements in inflation. Neutral technology shocks and monetary policy shocks seem less relevant at business cycle frequencies. The impulse response dynamics provide support for medium-scale DSGE models, but not for strong price rigidities.

Suggested Citation

  • Gubler, Matthias & Hertweck, Matthias Sebastian, 2011. "Commodity Price Shocks and the Business Cycle: Structural Evidence for the U.S," Working papers 2011/05, Faculty of Business and Economics - University of Basel.
    • Handle: RePEc:bsl:wpaper:2011/05
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    8. Jorge Fornero & Markus Kirchner & Andrés Yany, 2015. "Terms of Trade Shocks and Investment in Commodity-Exporting Economies," Central Banking, Analysis, and Economic Policies Book Series, in: Rodrigo Caputo & Roberto Chang (ed.),Commodity Prices and Macroeconomic Policy, edition 1, volume 22, chapter 5, pages 135-193, Central Bank of Chile.
    9. Semeyutin, Artur & Downing, Gareth, 2022. "Co-jumps in the U.S. interest rates and precious metals markets and their implications for investors," International Review of Financial Analysis, Elsevier, vol. 81(C).
    10. Jair N. Ojeda-Joya & Oscar Jaulin-Mendez & Juan C. Bustos-Peláez, 2019. "The Interdependence Between Commodity-Price and GDP Cycles: A Frequency-Domain Approach," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 47(3), pages 275-292, September.
    11. Oliveira, Sydnei Marssal de & Ribeiro, Celma de Oliveira & Cicogna, Maria Paula Vieira, 2018. "Uncertainty effects on production mix and on hedging decisions: The case of Brazilian ethanol and sugar," Energy Economics, Elsevier, vol. 70(C), pages 516-524.
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    13. Radoslaw Kurach, 2012. "Stocks, Commodities And Business Cycle Fluctuations – Seeking The Diversification Benefits," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 7(4), pages 101-116, December.
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    15. Ameyaw, Emmanuel, 2024. "Business cycles in a cocoa and gold economy: Commodity price shocks do not always matter," Resources Policy, Elsevier, vol. 91(C).
    16. Qian, Chenqi & Zhang, Tianding & Li, Jie, 2023. "The impact of international commodity price shocks on macroeconomic fundamentals: Evidence from the US and China," Resources Policy, Elsevier, vol. 85(PB).
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    18. Mohammadi, H. & Abolhasani, L. & Shahnoushi, N. & Shabanian, F., 2018. "The effects of business cycle indicators on stock market indices of food industry in Iran," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277425, International Association of Agricultural Economists.
    19. Triantafyllou, Athanasios & Dotsis, George, 2017. "Option-implied expectations in commodity markets and monetary policy," Journal of International Money and Finance, Elsevier, vol. 77(C), pages 1-17.
    20. Bürgi Bonanomi, Elisabeth & Elsig, Manfred & Espa, Ilaria, 2015. "The Commodity Sector and Related Governance Challenges from a Sustainable Development Perspective: The Example of Switzerland Current Research Gaps," Papers 865, World Trade Institute.

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    Keywords

    business cycles; commodity price shocks; structural VAR;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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