The Transmission of Commodity Price Super-Cycles
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.
Published Versions
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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