Sharing a Ride on the Commodities Roller Coaster: Common Factors in Business Cycles of Emerging Economies

Abstract

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Commodity Booms and Busts in Emerging Economies

“…The lower bound of our estimates suggests that a 10 percent deviation of commodity prices from their long-run mean can move Argentina's real interest spread by almost 2 percentage points. This finding also confirms some of the existing evidence from the literature on interest rate spreads of commodity exporting economies (see for example Fernández et al, 2015, Bastourre et al, 2012, and Shousha, 2016. It also connects with earlier work by Kaminsky et al (2005) on the procyclicality of capital flows in developing countries.…”

“…One key observation that has been highlighted in previous research on commodity exporting economies is the strong negative comovement of interest rate spreads and commodity prices. Fernández et al (2015) highlight the strong negative effect of commodity price increases on country risk premia in sovereign bond spreads. Bastourre et al (2012) estimate the correlation between a common factor of emerging economy bond returns and a common factor of commodity prices to be -0.81.…”

Latin America's Declining Skill Premium: A Macroeconomic Analysis

“…The response of the skill premium to a typical shock to commodity prices, at its trough, is nearly 10 times larger than its response to a typical shock to the spread. A preponderant role of commodity prices in the model economy is consistent with the findings in Fernández, González, and Rodríguez (). The next subsection performs a quantitative analysis of the effect of favorable external shocks on the observed decline in Latin America's skill premium.…”

“…See, for example, Gavin and Perotti (1997), Frankel, Végh, and Vuletin (2013), and Ilzetzki and Végh (2008 Table 3 summarizes the results of the estimation. The priors are fairly loose and follow Fernández, González and Rodríguez (2015), with a Beta distribution with mean 0.5 and standard deviation 0.15 assumed for coefficients ρ co and ρ zr , and an Inverse Gamma distribution with mean 0.01 and infinite standard deviation for coefficients σ co and σ zr . The posterior densities are quite different from the loose priors, which means the data contain valuable information.…”

“…See, for example, Izquierdo, Romero, and Talvi (), Osterholm and Zettelmeyer (), and Fernández, González, and Rodríguez ().…”