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BOK Working Paper No.2018-47, Commodities and International Business Cycles

Economic Research Institute (82-2-759-5430) 2018.12.28 4314

Title : Commodities and International Business Cycles

Author : Myunghyun Kim(BOK)


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.