Medium Term Business Cycles in Developing Countries

Diego Comin (), Norman Loayza, Farooq Pasha and Luis Servén

No 15428, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We build a two country asymmetric DSGE model with two features: (i) a product cycle structure determines the range of intermediate goods used to produce new capital in each country and (ii) there are investment flow adjustment costs in the developing economy. We calibrate the model to match the Mexico-US trade and FDI flows. The model is able to explain (i) why US shocks have a larger effect on Mexico than in the US and hence why the Mexican economy is more volatile than the US; (ii) why US business cycles lead over medium term fluctuations in Mexico and (iii) why Mexican consumption is not less volatile than output.

JEL-codes: E3 F1 F2 F4 O3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dev, nep-dge, nep-lam, nep-mac and nep-opm
Date: 2009-10
Note: EFG IFM ITI PR

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Working Paper: Medium Term Business Cycles in Developing Countries (2009)
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