ON THE SOURCES OF AGGREGATE FLUCTUATIONS IN EMERGING ECONOMIES

Roberto Chang and Andrés Fernández Martin

International Economic Review, 2013, vol. 54, issue 4, 1265-1293

Abstract: Recent research on macroeconomic fluctuations in emerging economies has advocated introducing a stochastic productivity trend or allowing for interest rate shocks and financial frictions. We estimate a model that encompasses these two approaches, shedding light on their relative merits and on how financial frictions affect the transmission of shocks. The model accounts for aggregate fluctuations by assigning a dominant role to financial frictions in amplifying conventional (temporary) productivity shocks, whereas trend shocks play a minor role. A link between spreads and expected future productivity emerges as essential for a reasonable approximation to the data.

Date: 2013
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https://doi.org/10.1111/iere.12036

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Working Paper: On the Sources of Aggregate Fluctuations in Emerging Economies (2010)
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