Commodity exports, financial frictions, and international spillovers

Romain Houssa, Jolan Mohimont, Christopher Otrok

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This paper offers a solution to the international co-movement puzzle found in open-economy macroeconomic models. We develop a small open economy (SOE) dynamic stochastic general equilibrium (DSGE) model describing three endogenous channels that capture spillovers from the world to a commodity exporter: a world commodity price channel, a domestic commodity supply channel, and a financial channel. We estimate our model with Bayesian methods on two commodity-exporting SOEs, namely Canada and South Africa. In addition to explaining international business cycle synchronization, the new model attributes an important fraction of business cycle fluctuations to foreign shocks in the SOEs.

Original languageEnglish
Article number104465
JournalEuropean Economic Review
Issue number104465
Publication statusPublished - Sept 2023


  • Bayesian
  • Commodities
  • DSGE
  • Financial frictions
  • Foreign shocks
  • International spillovers
  • Monetary policy
  • Small-open economy


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