International Business Cycles in Emerging Markets

Jacek Rothert

Departmental Working Papers from United States Naval Academy Department of Economics

Abstract: This paper documents cyclical behavior of real exchange rates (RERs) in emerging and developed economies: RERs are pro-cyclical in emerging markets and mildly counter-cyclical in developed economies. RER pro-cyclicality coincides with excess volatility of consumption and counter-cyclicality of the trade balance. The paper then re-evaluates the role of trend shocks and interest rate shocks in emerging economies, by incorporating these features into a standard international business cycle model where domestic and foreign goods are imperfect substitutes. In the model, estimated to match the behavior of the RERs, trend shocks play no role in TFP or GDP fluctuations in Mexico. Conversely, exogenous country risk shocks, without any frictions that would create supply-side effects, account for 78% of GDP fluctuations. The key is that domestic and foreign goods are imperfect substitutes, which dampens the impact of trend shocks and accentuates the impact of interest rate shocks on output and consumption.

Pages: 67 pages
Date: 2019-10
New Economics Papers: this item is included in nep-dge, nep-mac and nep-opm
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.usna.edu/EconDept/RePEc/usn/wp/usnawp63.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 500 Can't connect to www.usna.edu:80 (A connection attempt failed because the connected party did not properly respond after a period of time, or established connection failed because connected host has failed to respond.)

Related works:
Journal Article: INTERNATIONAL BUSINESS CYCLES IN EMERGING MARKETS (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:usn:usnawp:63

Access Statistics for this paper

More papers in Departmental Working Papers from United States Naval Academy Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by ().