Article ID Journal Published Year Pages File Type
966519 Journal of Monetary Economics 2013 17 Pages PDF
Abstract
Business cycles in emerging economies display very volatile consumption and strongly countercyclical trade balance. We show that aggregate consumption in these economies is not more volatile than output once durables are accounted for. Then, we present and estimate a real business cycles model for a small open economy that accounts for this empirical observation. Our results show that the role of permanent shocks to aggregate productivity in explaining cyclical fluctuations in emerging economies is considerably lower than previously documented. Moreover, we find that financial frictions are crucial to explain some key business cycle properties of these economies.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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