To investigate the propagation of commodity price shocks into the Botswana economy, the study employs a recursively identified vector autoregression (VAR) by using quarterly data for Botswana for the period 2001: Q1 to 2017: Q2. The analysis focuses on the responses of output growth, domestic prices, the interest rate and the exchange rate to innovations in global commodity prices. The results show that a positive shock to energy and non-fuel prices stimulates both domestic output and inflation. Commodity price shocks are also found to be increasingly important in explaining variations in the macroeconomic indicators at all forecast horizons. A monetary tightening could work to contain the inflationary effects of the shock.

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