Medium Term Business Cycles in Developing Countries

Servén, Luis, Norman Loayza (), Diego Comin and Farooq Pasha
Authors registered in the RePEc Author Service: Luis Servén

No 8574, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Business cycle fluctuations in developed economies (N) tend to have large and persistent effects on developing countries (S). We study the transmission of business cycle fluctuations for developed to developing economies with a two-country asymmetric DSGE model with two features: (i) endogenous and slow diffusion of technologies from the developed to the developing country, and (ii) adjustment costs to investment flows. Consistent with the model we observe that the flow of technologies from N to S co-moves positively with output in both N and S. After calibrating the model to Mexico and the U.S., it can explain the following stylized facts: (i) U.S. and Mexican output co-move more than consumption; (ii) U.S. shocks have a larger effect on Mexico than in the U.S.; (iii) U.S. business cycles lead over medium term fluctuations in Mexico; (iv) Mexican consumption is more volatile than output.

Keywords: Business cycles in developing countries; Co-movement between developed and developing economies; Volatility; Extensive margin of trade; Product life cycle; Fdi (search for similar items in EconPapers)
JEL-codes: E3 O3 (search for similar items in EconPapers)
Date: 2011-09
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Medium Term Business Cycles in Developing Countries (2014)
Working Paper: Medium Term Business Cycles in Developing Countries (2010)
Working Paper: Medium Term Business Cycles in Developing Countries (2009)
Working Paper: Medium-term business cycles in developing countries (2009)
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