Commodity-driven Macroeconomic Fluctuations: Does Size Matter?

Patricia Gomez-Gonzalez, Maximiliano Jerez-Osses, Vida Maver, Jorge Miranda-Pinto and Jean-Marc Natal

No 2025/208, IMF Working Papers from International Monetary Fund

Abstract: Commodities play a central yet often underappreciated role in shaping macroeconomic fluctuations across both advanced economies (AEs) and emerging market and developing economies (EMDEs), with the latter exhibiting greater volatility. This paper examines how the domestic interconnectedness of the commodity sector conditions the transmission of commodity price shocks. Rather than focusing only on sectoral size, we emphasize production linkages, measured by the network-adjusted value-added share (NAVAS) of the commodity sector. Using panel local projections for OECD countries, we show that greater interconnectedness amplifies the positive effects of terms-of-trade gains on consumption while mitigating the negative effects of declines. To interpret these results, we develop a small open economy model with production networks. The model highlights how commodity interconnectedness strengthens wealth channels but dampens real wage channels, shaping the overall macroeconomic response. Our findings underscore the importance of network structures in explaining commodity shock propagation and the heightened volatility observed in EMDEs.

Keywords: Production Networks; Commodity Prices; Network-Adjusted Value- Added Share; Advanced Economies and Emerging Markets (search for similar items in EconPapers)
Pages: 66
Date: 2025-10-14
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