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Output Volatility in Emerging Market and Developing Countries: What Explains the “Great Moderation” of 1970-2003?

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  • Dalia S. Hakura

    ()
    (IMF Washington)

Abstract

Output volatility and the size of output drops have declined across groups of nontransition countries studied in this paper over the past three decades, but have remained considerably higher in developing countries than in industrial countries. The paper employs a Bayesian latent dynamic factor model to decompose output growth into global, regional, and country-specific components. The favorable trends in output volatility and large output drops in developing countries are found to have resulted from lower country-specific volatility and more benign country-specific events. Evidence from cross-section regressions over the 1970–2003 period suggests that the volatility of discretionary fiscal spending and terms of trade volatility together with exchange rate flexibility were key determinants of volatility and large output drops.

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Bibliographic Info

Article provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.

Volume (Year): 59 (2009)
Issue (Month): 3 (August)
Pages: 229-254

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Handle: RePEc:fau:fauart:v:59:y:2009:i:3:p:229-255

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Related research

Keywords: output volatility; output drops; fiscal policy; exchange rate policy; developing countries;

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References

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  1. Philip R. Lane, 2002. "The Cyclical Behaviour of Fiscal Policy: Evidence from the OECD," Trinity Economics Papers 20022, Trinity College Dublin, Department of Economics.
  2. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Végh, 2005. "When It Rains, It Pours: Procyclical Capital Flows and Macroeconomic Policies," NBER Chapters, in: NBER Macroeconomics Annual 2004, Volume 19, pages 11-82 National Bureau of Economic Research, Inc.
  3. Sebastian Edwards & Eduardo Levy Yeyati, 2003. "Flexible Exchange Rates as Shock Absorbers," NBER Working Papers 9867, National Bureau of Economic Research, Inc.
  4. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 1-48, February.
  5. Fatás, Antonio & Mihov, Ilian, 2002. "The Case for Restricting Fiscal Policy Discretion," CEPR Discussion Papers 3277, C.E.P.R. Discussion Papers.
  6. Olivier Blanchard & John Simon, 2001. "The Long and Large Decline in U.S. Output Volatility," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(1), pages 135-174.
  7. Michael D. Bordo & Thomas Helbling, 2003. "Have National Business Cycles Become More Synchronized?," NBER Working Papers 10130, National Bureau of Economic Research, Inc.
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Cited by:
  1. Sarah Jacobson & Ragan Petrie, 2010. "Favor Trading in Public Good Provision," Department of Economics Working Papers 2010-19, Department of Economics, Williams College, revised Apr 2013.
  2. Chami Ralph & Hakura Dalia S. & Montiel Peter J., 2012. "Do Worker Remittances Reduce Output Volatility in Developing Countries?," Journal of Globalization and Development, De Gruyter, vol. 3(1), pages 1-25, June.
  3. Solomos, Dionysios & Papageorgiou, Theofanis & Koumparoulis, Dimitrios, 2012. "Financial Sector and Business Cycles Determinants in the EMU context: An Empirical Approach (1996-2011)," MPRA Paper 43858, University Library of Munich, Germany.

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