Commodity Prices and the Business Cycle in Latin America: Living and Dying by Commodities?

Abstract

We analyze the dynamic interactions between commodity prices and output growth of the seven greatest exporters Latin American countries: Argentina, Brazil, Colombia, Chile, Mexico, Peru and Venezuela. Using Markov-switching impulse response functions, we find that the responses of their respective output growths to commodity price shocks are time dependent, size dependent and sign dependent.Overall, the major evidence of asymmetries in output growth responses occurs when commodity price shocks lead to regime shifts. Accordingly, the design of optimal counter-cyclical stabilization policies in this region should take into account that the reactions of the economic activity vary considerably across business cycle regimes.

Output Growth and Structural Reform in Latin America: Have Business Cycles Changed?

“…Finally, I find strong evidence of a positive and linear relationship between the growth rate of real GDP and the growth rate of commodity prices in LatAm. But contrary to Camacho and Perez‐Quiros (), the hypothesis that commodity price increases have different economic effects from commodity price decreases (i.e., the relationship is nonlinear) is strongly rejected for all countries considered. On average, the effect of commodity prices on real GDP growth in the 1980s and 1990s was small and sometimes negative.…”

“…For example, Calderón and Fuentes (2014) argue that the decline in the amplitude of recessions observed in LatAm during what they call the "globalization era" (after 1990) can be partially attributed to structural changes in advanced economies (the Great Moderation). In addition, Österholm and Zettelmeyer (2007), Izquierdo, Romero, and Talvi (2008), and Camacho and Perez-Quiros (2013) show that favorable external conditions such as abundant international liquidity and a rise in commodity prices can explain a significant share of recent LatAm growth. As summarized in Table 1 (bottom panel), the average quarterly growth rate of relevant commodity price indexes was negative (−0.31%) in the 1980s and approximately 0% in the 1990s.…”

Stocks, Commodities and Business Cycle Fluctuations – Seeking the Diversification Benefits

“…Summing up, comparing to other assets a different response pattern of commodities to macroeconomic news make them valuable equity portfolio diversifiers. The positive relationship between commodity prices and inflation was also confirmed in the studies by Camacho and Perez-Quiros (2011) for Latin America and by Gubler and Hertweck (2011) for US data using SVAR methodology.…”

Time–frequency relationship between US output with commodity and asset prices

“…A first strand tests the relationship between commodity prices and economic growth (Deaton and Miller, 1996;Brückner and Ciccone, 2010;Céspedes and Velasco, 2012;Collier and Goderis, 2012;Camacho and Perez-Quiros, 2014), with a focus on oil prices (Jayaraman and Choong, 2009;Le and Chang, 2012;Difiglio, 2014;Narayan et al 2014) and gold prices (Pierdzioch et al, 2014). A second recent strand of literature pays importance to the role of housing prices in explaining the business cycle fluctuations (Miller et al, 2011;Pan and Wang, 2013;Loutskina and Strahan, 2015).…”