The Interdependence between Commodity-Price and GDP Cycles: A Frequency-Domain Approach

We study the interdependence between aggregate commodity prices and world Gross Domestic Product (GDP) by performing two empirical exercises with long-run data that starts in the 19th Century. First, we compute long-term and medium-term cycles and measure their degree of synchronization for different leads and lags. Second, we perform causality tests on the frequency domain to understand better the nature of their interdependence. Our results show first, evidence of cycle synchronization only in the case of super cycles. Second, there is causality evidence from GDP to aggregate commodity prices mostly on long-run frequencies; therefore, commodity-price trends and super-cycles are demand driven. Third, there is some causality evidence between oil-prices and GDP on both causation directions. However, oil price fluctuations cause GDP on business-cycle frequencies only. Finally, in the case of metal prices, the evidence is unclear for both causality directions implying that they are not demand driven. Overall, our results show that the interdependence between commodity prices and GDP varies significantly across types of goods and fluctuation frequencies

Mind the Gap: Computing Finance-Neutral Output Gaps in Latin-American Economies

We compute a measure of the finance-neutral potential output for Colombia, Chile and Mexico. Our methodology is based on Borio et al (2013, 2014) and incorporates the cycle of credit, house prices and the real exchange rate on the computation of the output gap. The literature on business cycles in emerging market economies, particularly papers focusing on Latin American economies, has highlighted the importance of including shocks to the interest rate in world capital markets together with financial frictions; terms of trade fluctuations; and a procyclical government spending process. Our results show that around the financial crises of the 1990s the finance-neutral output gap behaved differently than the traditional measures observed by policymakers. In particular, gaps are higher before crises and lower after them

Mind the Gap: Computing Finance-Neutral Output Gaps in Latin-American Economies

We compute a measure of the finance-neutral potential output for Colombia, Chile and Mexico. Our methodology is based on Borio et al (2013, 2014) and incorporates the cycle of credit, house prices and the real exchange rate on the computation of the output gap. The literature on business cycles in emerging market economies, particularly papers focusing on Latin American economies, has highlighted the importance of including shocks to the interest rate in world capital markets together with financial frictions; terms of trade fluctuations; and a procyclical government spending process. Our results show that around the financial crises of the 1990s the finance-neutral output gap behaved differently than the traditional measures observed by policymakers. In particular, gaps are higher before crises and lower after them