TY  - JOUR
AU  - Céspedes,Luis Felipe
AU  - Velasco,Andrés
TI  - Macroeconomic Performance 
During Commodity Price Booms and Busts
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 18569
PY  - 2012
Y2  - November 2012
UR  - http://www.nber.org/papers/w18569
L1  - http://www.nber.org/papers/w18569.pdf
N1  - Author contact info:
Luis Cespedes
Universidad Adolfo Ibañez
E-Mail: lfcespedes@uai.cl

Andres Velasco
Columbia University
School of International and Public Affairs
420 West 118th Street
New York, NY 10027
Tel: 212/854-3899
E-Mail: avbranes@gmail.com
M2  - featured in NBER digest on 2013-04-01
AB  - Fluctuations in commodity prices are often associated with macroeconomic volatility. But not all nations are created equal in this regard. The macro response to commodity booms and busts depends both on the structural characteristics of the economy and on the policy framework that is in place. In this paper we investigate the macro response of a group of commodity-producing nations in episodes of large commodity prices shocks. First we provide a theoretical framework to analyze how shocks to commodity prices affect the domestic economy. For this we use a simple open-economy model with nominal rigidities and financial frictions. Then we provide empirical evidence (using commodity price boom and bust episodes) that commodity price shocks have a significant impact on output and investment dynamics. Economies with more flexible exchange rate regimes exhibit less pronounced responses of output during these episodes. We also provide evidence that the impact of those shocks on investment tends to be larger for economies with less developed financial markets. Moreover, we find that international reserve accumulation, more stable political systems, and less open capital accounts tend to reduce the real exchange rate appreciation (depreciation) in episodes of commodity price booms (busts).
ER  -