The Transmission of Commodity Price Super-Cycles

Felipe Benguria, Felipe Saffie and Sergio Urzua

No 24560, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We examine two key channels through which commodity price super-cycles affect the economy: a wealth channel, through which higher commodity prices increase domestic demand, and a cost channel, through which they induce wage increases. 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, two-region model with heterogeneous firms and workers to further quantify the mechanisms and evaluate welfare. A counterfactual economy in which commodity booms are purely endowment shocks experiences only 45% of the intersectoral labor reallocation between tradables and nontradables, and 40% of the within-tradables labor reallocation between domestic and exported production. Labor market frictions lead to persistent unemployment as the boom fades, and as a result the welfare gains obtained from a commodity super-cycle are 50% lower relative to those which would be obtained under a fully-flexible labor market.

JEL-codes: E32 F16 F42 (search for similar items in EconPapers)
Date: 2018-04
New Economics Papers: this item is included in nep-lam, nep-mac and nep-opm
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Citations: View citations in EconPapers (9)

Published as Felipe Benguria & Felipe Saffie & Sergio Urzua, 2024. "The Transmission of Commodity Price Super-Cycles," Review of Economic Studies, vol 91(4), pages 1923-1955.

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Journal Article: The Transmission of Commodity Price Super-Cycles (2024)
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