Commodity price shocks and the business cycle: Structural evidence for the U.S.

• Commodity price shocks are a very important driving force of the U.S. business cycle.
• Particularly, with respect to inflation.
• Second only to investment-specific technology shocks.

This paper evaluates the relative importance of commodity price shocks in the U.S. business cycle. Therefore, we extend the standard set of business cycle shocks to include unexpected changes in commodity prices. The resulting SVAR shows that commodity price shocks are a very important driving force of macroeconomic fluctuations — second only to investment-specific technology shocks — particularly with respect to inflation. Neutral technology shocks and monetary policy shocks, on the other hand, seem less relevant at business cycle frequencies. Neutral technology shocks rather play an important role at low frequencies.