World Shocks, World Prices, and Business Cycles: An Empirical Investigation
Most existing studies of the macroeconomic effects of global shocks assume that they are mediated by a single intratemporal relative price such as the terms of trade and possibly an intertemporal price such as the world interest rate. This paper presents an empirical framework in which multiple commodity prices and the world interest rate transmit world disturbances. Estimates on a panel of 138 countries over the period 1960-2015 indicate that world shocks explain on average 33 percent of aggregate fluctuations in individual economies. This figure doubles when the model is estimated on post 2000 data. The increase is attributable mainly to a change in the domestic transmission mechanism as opposed to changes in the world commodity price process as argued in the literature on the financialization of world commodity markets.
We would like to thank Laura Alfaro, Ivan Petrella, and the participants at the International Seminar on Macroeconomics held in Sofia, Bulgaria, June 24-25, 2016 for comments. Santiago Tellez-Alzate provided excellent research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
World Shocks, World Prices, and Business Cycles: An Empirical Investigation, Andrés Fernández, Stephanie Schmitt-Grohé, Martín Uribe. in NBER International Seminar on Macroeconomics 2016, Clarida, Reichlin, and Devereux. 2017
Andrés Fernández & Stephanie Schmitt-Grohé & Martín Uribe, 2017. "World shocks, world prices, and business cycles: An empirical investigation," Journal of International Economics, vol 108, pages S2-S14. citation courtesy of