Trend shocks and economic development
AbstractThis article explores the role of trend shocks in explaining the specificities of business cycles in developing countries using the methodology introduced by Aguiar and Gopinath (2007). We specify a small open economy model with transitory and trend shocks on productivity to replicate the differences in the business cycle behavior observed between developed, emerging, and Sub-Saharan Africa countries. Our results suggest a strong relationship between the weight of trend shocks in the source of fluctuations and the level of economic development. The weight of trend shocks is (i) higher in Sub-Saharan Africa countries than in emerging and developed countries, (ii) negatively correlated with the level of income, the quality of institutions, and the size of the credit market, and (iii) uncorrelated with the volatility of aid received by countries, the inflation rate, and the trend in trade-openness.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Development Economics.
Volume (Year): 103 (2013)
Issue (Month): C ()
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Web page: http://www.elsevier.com/locate/devec
Business cycle; Permanent shocks; Growth; Africa; Small open economy;
Other versions of this item:
- 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
- O55 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Africa
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