Emerging Market Business Cycles Revisited: Learning about the Trend

Emine Boz, Christian Daude and C. Bora Durdu

Koç University-TUSIAD Economic Research Forum Working Papers from Koc University-TUSIAD Economic Research Forum

Abstract: We build an equilibrium business cycle model in which agents cannot perfectly distinguish between the permanent and transitory components of TFP shocks and learn about those components using the Kalman filter. Calibrated to Mexico, the model predicts a higher variability of consumption relative to output and a strongly negative correlation between the trade balance and output for a wide range of variability and persistence of permanent shocks vis-a-vis the transitory shocks. Moreover, our estimation for Mexico and Canada suggests more severe informational frictions in emerging markets than in developed economies.

Keywords: emerging markets; business cycles; learning; Kalman filter (search for similar items in EconPapers)
JEL-codes: D82 E44 F41 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2011-04
New Economics Papers: this item is included in nep-bec, nep-cba, nep-dge, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (84)

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Related works:
Working Paper: Emerging market business cycles revisited: learning about the trend (2008)
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