Working Paper: CEPR ID: DP8825
Authors: Valery Charnavoki; Juan J. Dolado
Abstract: This paper presents a structural dynamic factor model of a small commodity-exporting economy using Canada as a representative case study. Combining large panel data sets of the global and Canadian economies, we first identify those demand and supply shocks that explain most of the volatility in real commodity prices. Next we quantify their dynamic effects on a wide variety of variables for this economy. We are able to reproduce all the main stylized facts documented in the literature about business cycles in these countries. This includes spending and Dutch disease effects which have proven difficult to find in models where the innovations to commodity prices are not properly identified. Our results are quite robust to different identification schemes of the shocks.
Keywords: business cycles; commodity exports; commodity prices; factor models; VARs
JEL Codes: C32; F44; Q43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Global Demand Shock (GD) (F69) | Commodity Prices (Q02) |
| Commodity-Specific Shock (GC) (Q02) | Commodity Prices (Q02) |
| Commodity Prices (Q02) | External Balances (F32) |
| Commodity Prices (Q02) | Real GDP (E20) |
| Commodity Prices (Q02) | Investment (G31) |
| Commodity-Specific Shock (GC) (Q02) | Dutch Disease Effect (Q33) |
| Global Demand Shock (GD) (F69) | Output and Expenditures (H59) |