Business Cycles in Emerging Markets: The Role of Durable Goods and Financial Frictions
International Monetary Fund
No 2011/133, IMF Working Papers from International Monetary Fund
Abstract:
This paper examines how durable goods and financial frictions shape the business cycle of a small open economy subject to shocks to trend and transitory shocks. In the data, nondurable consumption is not as volatile as income for both developed and emerging market economies. The simulation of the model implies that shocks to trend play a less important role than previously documented. Financial frictions improve the ability of the model to match some key business cycle properties of emerging economies. A countercyclical borrowing premium interacts with the nature of durable goods delivering highly volatile consumption and very countercyclical net exports.
Keywords: WP; consumer durables; trade balance; emerging markets; real business cycles; durables; financial frictions; durable goods; borrowing premium; consumption goods; consumption expenditure; utility share; open economy; Consumption; Emerging and frontier financial markets; Business cycles; Income (search for similar items in EconPapers)
Pages: 38
Date: 2011-06-01
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Citations: View citations in EconPapers (6)
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Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2011/133
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