Business Cycle Accounting in a Small Open Economy

Jacek Rothert and Mohammad Rahmati ()

Departmental Working Papers from United States Naval Academy Department of Economics

Abstract: Building on Chari et al. (2007), we develop a method to assess theories of business cycles in small open economies. We build a diagnostic economy with time-varying distortions (wedges), which measure the gap between model generated aggregates and the data. We introduce two new wedges, which allow us to fully account for the movements in the trade balance and the current account: (i) the trend-shock wedge and (ii) the debt price wedge. We show how various detailed models with frictions map to economy with new wedges. Finally, we empirically evaluate di erent theories of uctuations in emerging economies.

Pages: 40 pages
Date: 2014-03
New Economics Papers: this item is included in nep-dge, nep-mac and nep-opm
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Citations: View citations in EconPapers (9)

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