“TROPICAL” REAL BUSINESS CYCLES? A BAYESIAN EXPLORATION

Andrés Fernández Martin

Revista ESPE - Ensayos Sobre Política Económica, 2010, vol. 28, issue 61, No 8320, 60-105

Abstract: Can frictionless small open economy models drivensolely by technology shocks account for businesscycles in developing countries? We do not find evidenceof it. We build a DSGE model that jointly includesa variety of real perturbations in addition totechnology shocks, such as procyclical fiscal policies,terms of trade fluctuations, and perturbationsto the foreign interest rate coupled with financialfrictions. We estimate it using Bayesian methodson high and low frequency data from a developing-and tropical"- country, Colombia. We findinterest rate shocks to be crucial and that financialfrictions play a central role as propagating mechanismsof transitory technology shocks. These twodriving forces alone can account well for the observedproperties of the Colombian business cycle.Other structural shocks, such as terms of trade fluctuationsand level shifts in the technology process,do not appear to be relevant in the past decade anda half, but their importance increases when a longerspan of data is considered."

Keywords: Business Cycles; Developing economies; dynamic stochastic general equilibriummodels; small open economy models; Bayesianestimation. (search for similar items in EconPapers)
JEL-codes: C11 E32 F41 F47 (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://doi.org/10.32468/Espe.6102

Related works:
Working Paper: "Tropical" Real Business Cycles? A Bayesian Exploration (2011)
Journal Article: “Tropical” Real Business Cycles? A Bayesian Exploration (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:col:000107:008320

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