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Domestic Linkages and the Transmission of Commodity Price Shocks

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  • Damian Romero

Abstract

This paper studies the role of input-output (IO) linkages in the transmission of commodity price fluctuations. Empirically, the positive correlation between commodity prices and GDP decreases in the degree of IO linkages. In a model of a commodity-exporting economy where international markets set the commodity price, IO linkages reduce the demand for inputs by the commodity sector, dampening the level of income of the country after a positive commodity price shock. In a calibrated version of the model, the elasticity of GDP to commodity prices would be at least 7% higher if the commodity sector had been 10% less connected.

Suggested Citation

  • Damian Romero, 2022. "Domestic Linkages and the Transmission of Commodity Price Shocks," Working Papers Central Bank of Chile 936, Central Bank of Chile.
    • Handle: RePEc:chb:bcchwp:936
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    File URL: https://www.bcentral.cl/documents/33528/133326/DTBC_936.pdf
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