The Transmission of Commodity Price Super-Cycles

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April 2018
Paper author(s): 
Felipe Benguria
Felipe Saffie
Sergio Urzua
Financial Economics
Macroeconomics - Economic growth - Monetary Policy

We examine the channels through which commodity price super-cycles affect the economy. Exploiting regional variation in exposure to commodity price shocks and administrative firm-level data from Brazil we disentangle two transmission channels. Higher commodity prices increase domestic demand (wealth channel), disproportionately benefiting nonexporters, and induce wage increases (cost channel) especially among unskilled workers, hurting unskilled-intensive industries. We introduce a dynamic model with heterogeneous firms and workers to quantify these mechanisms and evaluate welfare. The cost channel explains two-thirds of intersectoral labor reallocation, and the wealth channel explains two-thirds of the labor reallocation between exporters and nonexporters.


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