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The Transmission of Commodity Price Super-Cycles

Felipe Benguria, Felipe Saffie, Sergio Urzúa

NBER Working Paper No. 24560
Issued in April 2018, Revised in November 2018
NBER Program(s):Economic Fluctuations and Growth Program, International Finance and Macroeconomics Program, International Trade and Investment Program, Labor Studies Program

We examine two key channels through which commodity price super-cycles affect the economy. Higher commodity prices increase domestic demand (wealth channel), disproportionately benefiting nonexporters, and induce wage increases (cost channel) especially among unskilled workers, hurting unskilled-intensive industries. By exploiting regional variation in exposure to commodity price shocks and administrative firm-level data from Brazil, we empirically disentangle these transmission channels. We introduce a dynamic model with heterogeneous firms and workers to further quantify the mechanisms and evaluate welfare. The cost channel explains two-thirds of intersectoral labor reallocation, and the wealth channel explains two-thirds of the labor reallocation between exporters and non-exporters. Labor market frictions lead to persistent unemployment as the boom fades, eroding up to 50% of the accumulated welfare gains.

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Document Object Identifier (DOI): 10.3386/w24560

 
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