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Understanding Emerging Market Business Cycles

Author

Listed:
  • Stephen McKnight

    (El Colegio de México)

  • Laura Povoledo

    (University of the West of England)

Abstract

We document important differences between developed and emerging market economies relating to international relative prices and quantities. In emerging economies, imports are more volatile than exports, the terms of trade is less volatile, and net exports are strongly countercyclical. Moreover, the terms of trade is acyclical or weakly countercyclical, while it is procyclical in developed countries. We compare three mechanisms which could account for the empirical evidence: trend productivity shocks, interest-rate shocks in the presence of financial frictions, and informality. We find that trend productivity shocks are necessary to replicate the observed behaviour of the open-economy variables.

Suggested Citation

  • Stephen McKnight & Laura Povoledo, 2024. "Understanding Emerging Market Business Cycles," Serie documentos de trabajo del Centro de Estudios Económicos 2024-02, El Colegio de México, Centro de Estudios Económicos.
    • Handle: RePEc:emx:ceedoc:2024-02
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    File URL: https://cee.colmex.mx/dts/2024/DT-2024-2.pdf
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    More about this item

    Keywords

    Emerging Markets; Business Cycles; Terms of Trade; Net Exports; Informality;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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