IMF Working Papers

Commodity-driven Macroeconomic Fluctuations: Does Size Matter?

By Patricia Gomez-Gonzalez, Maximiliano Jerez-Osses, Vida Maver, Jorge Miranda-Pinto, Jean-Marc Natal

October 14, 2025

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Patricia Gomez-Gonzalez, Maximiliano Jerez-Osses, Vida Maver, Jorge Miranda-Pinto, and Jean-Marc Natal. "Commodity-driven Macroeconomic Fluctuations: Does Size Matter?", IMF Working Papers 2025, 208 (2025), accessed October 27, 2025, https://doi.org/10.5089/9798229029919.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Commodities play a central yet often underappreciated role in shaping macroeconomic fluctuations across both advanced economies (AEs) and emerging market and developing economies (EMDEs), with the latter exhibiting greater volatility. This paper examines how the domestic interconnectedness of the commodity sector conditions the transmission of commodity price shocks. Rather than focusing only on sectoral size, we emphasize production linkages, measured by the network-adjusted value-added share (NAVAS) of the commodity sector. Using panel local projections for OECD countries, we show that greater interconnectedness amplifies the positive effects of terms-of-trade gains on consumption while mitigating the negative effects of declines. To interpret these results, we develop a small open economy model with production networks. The model highlights how commodity interconnectedness strengthens wealth channels but dampens real wage channels, shaping the overall macroeconomic response. Our findings underscore the importance of network structures in explaining commodity shock propagation and the heightened volatility observed in EMDEs.

Subject: Commodities, Commodity price fluctuations, Commodity price shocks, Commodity prices, Consumption, International trade, Labor, National accounts, Prices, Production, Productivity, Real wages, Terms of trade

Keywords: Advanced Economies and Emerging Markets, Africa, Commodity price fluctuations, Commodity price shocks, Commodity prices, Commodity Prices, Consumption, Global, Network-Adjusted Value- Added Share, Production Networks, Productivity, Real wages, Terms of trade

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