Commodities and International Business Cycles

58 Pages Posted: 28 Dec 2018

See all articles by Myunghyun Kim

Myunghyun Kim

The Bank of Korea; The Bank of Korea-Economic Research Institute

Date Written: December 28, 2018

Abstract

I introduce commodities and countries’ different commodity trade structures into an otherwise standard two-country model to analyze international business cycles between the U.S. and commodity-exporting countries. In the model, only the foreign country (the commodity-exporting country) produces commodities and exports them to the home country (the U.S., the commodity-importing country). The model produces international business cycle statistics that are closer to the data than a standard model. In particular, the output correlation between the two countries increases and the consumption correlation falls compared to the standard model. Notably, unlike standard models, this model yields an output correlation that exceeds the consumption correlation, which mitigates the “quantity anomaly” that was previously noted in the literature. Commodity consumption and the complementarity between commodities and noncommodity goods in consumption play key roles in generating this result.

Keywords: International Business Cycles, Commodity-exporting countries, Commodity Trade Structures

JEL Classification: F40, F41, F44

Suggested Citation

Kim, Myunghyun, Commodities and International Business Cycles (December 28, 2018). Bank of Korea WP 2018-47. Available at SSRN: https://ssrn.com/abstract=3307229 or http://dx.doi.org/10.2139/ssrn.3307229

Myunghyun Kim (Contact Author)

The Bank of Korea ( email )

39, Namdaemun-ro, Jung-gu
Seoul, 04531
Korea, Republic of (South Korea)

The Bank of Korea-Economic Research Institute ( email )

39, Namdaemun-ro, Jung-gu
Seoul, 04531
Korea, Republic of (South Korea)

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