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Oil and Commodities Drive the World Business Cycle: A Long-Commodity-Cycle Model of the World Economy Over a Century and a Half

Vo Phuong Mai Le, David Meenagh and A. Patrick Minford

No E2018/16, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section

Abstract: This paper explores the world business cycle using unfiltered data from 1870 and looks for a theory that could account for the long wave commodity cycle in the world economy. We build a simple DSGE model that includes a long time-to-build constraint in the commodity sector. We find that this model can produce long cycles in output and commodity prices as introduced by Kontradieff (1925) and Schumpeter (1935). Our findings show that these long business cycles are produced by the long gestation of commodity capacity which causes very large swings in commodity prices.

Keywords: Long waves; commodities; DSGE model; Indirect Inference (search for similar items in EconPapers)
JEL-codes: E10 E32 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-his and nep-mac
Date: 2018-06
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