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Tropical" Real Business Cycles? A Bayesian Exploration"

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  • ANDRÉS FERNÁNDEZ

    ()

Abstract

Can frictionless small open economy models drivensolely by technology shocks account for businesscycles in developing countries? We do not find evidenceof it. We build a DSGE model that jointly includesa variety of real perturbations in addition totechnology shocks, such as procyclical fiscal policies,terms of trade fluctuations, and perturbationsto the foreign interest rate coupled with financialfrictions. We estimate it using Bayesian methodson high and low frequency data from a developing-and tropical"- country, Colombia. We findinterest rate shocks to be crucial and that financialfrictions play a central role as propagating mechanismsof transitory technology shocks. These twodriving forces alone can account well for the observedproperties of the Colombian business cycle.Other structural shocks, such as terms of trade fluctuationsand level shifts in the technology process,do not appear to be relevant in the past decade anda half, but their importance increases when a longerspan of data is considered."

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Article provided by BANCO DE LA REPÚBLICA - ESPE in its journal ENSAYOS SOBRE POLÍTICA ECONÓMICA.

Volume (Year): (2010)
Issue (Month): ()
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Handle: RePEc:col:000107:008320

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Keywords: Business Cycles; Developing economies; dynamic stochastic general equilibriummodels; small open economy models; Bayesianestimation.;

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  1. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Vegh, 2004. "When it Rains, it Pours: Procyclical Capital Flows and Macroeconomic Policies," NBER Working Papers 10780, National Bureau of Economic Research, Inc.
  2. David N. DeJong & Chetan Dave, 2007. "Implementing Nonlinear Appoximations Empirically, from Structural Macroeconometrics
    [Structural Macroeconometrics]
    ," Introductory Chapters, Princeton University Press.
  3. David N. DeJong & Chetan Dave, 2007. "Introduction to Structural Macroeconometrics
    [Structural Macroeconometrics]
    ," Introductory Chapters, Princeton University Press.
  4. Schmitt-Grohe, Stephanie & Uribe, Martin, 2003. "Closing small open economy models," Journal of International Economics, Elsevier, vol. 61(1), pages 163-185, October.
  5. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1993. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 108-151, March.
  6. Agenor, Pierre-Richard & McDermott, C John & Prasad, Eswar S, 2000. "Macroeconomic Fluctuations in Developing Countries: Some Stylized Facts," World Bank Economic Review, World Bank Group, vol. 14(2), pages 251-85, May.
  7. Javier Garcia-Cicco & Roberto Pancrazi & Martin Uribe, 2010. "Real Business Cycles in Emerging Countries?," American Economic Review, American Economic Association, vol. 100(5), pages 2510-31, December.
  8. Talvi, Ernesto & Vegh, Carlos A., 2005. "Tax base variability and procyclical fiscal policy in developing countries," Journal of Development Economics, Elsevier, vol. 78(1), pages 156-190, October.
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