Samson M'boueke

This paper analyzes the role of commodity import and export price shocks as a source of business cycle fluctuations in 28 emerging market and developing economies (EMDEs). Assuming that commodity prices are exogenous to these economies, I take both an empirical and a theoretical approach, and examine whether the two can be reconciled. First, I estimate country-specific SVARs and find that commodity import and export price shocks account for, on average, 26–30% of business cycle fluctuations. I then extend Schmitt-Grohé and Uribe's (2018) Importable-Exportable-Nontradable (MXN) model by explicitly introducing commodity import and export prices. Key parameters of this extended model are estimated by matching impulse responses from the country-specific SVARs. The model predicts that, on average, the shocks explain only 2–3% of business cycle fluctuations in the sample economies. Beyond this aggregate disconnect, a country-by-country comparison reveals that the empirical and theoretical models are also disconnected at the country level.