Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/322349 
Authors: 
Year of Publication: 
2025
Series/Report no.: 
Working Papers No. 2025-06
Publisher: 
Banco de México, Ciudad de México
Abstract: 
This paper analyzes the effect of commodity price fluctuations on a commodity-exporting economy. Using Chilean and international copper market data, I find that positive copper price changes resulting from copper-specific demand shocks generate a broad GDP expansion, with no visible decline in manufacturing exports. These results provide evidence against the Dutch disease hypothesis, which posits the crowding-out effect of commodity price increases on the manufacturing sector. I then estimate a small open economy business-cycle model and find that a low degree of substitution between domestic and foreign goods explains the positive sectoral effect of a commodity price shock. Finally, I evaluate how tariffs on imports determine the volatility of total output in response to commodity price shocks, and find that lower tariffs reduce the volatility of total production when commodity prices fluctuate.
Subjects: 
Commodity exporting economy
International market shocks
Dutch disease
Elasticity of substitution
JEL: 
E32
F13
F14
F16
F31
F41
F44
Document Type: 
Working Paper
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