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The Transmission of World Shocks to Emerging-Market Countries: An Empirical Analysis

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Author Info
Brigitte Desroches
Abstract

The first step in designing effective policies to stabilize an economy is to understand business cycles. No country is isolated from the world economy and external shocks are becoming increasingly important. The author documents the sources of macroeconomic fluctuations in 22 emerging-market countries, and measures two specific shocks that could be transmitted from one country to another: a world real output shock and a world real interest rate shock. Her analysis shows that there are major differences in the transmission mechanism across emerging-market countries. To assess whether they are due to different economic structures or to the exchange rate regime, she divides the sample into groups of countries. The results indicate that the exchange rate regime is a critical factor, although restrictions on capital flows also play a crucial role. The author also shows that regional groups and trade openness do not play as important a role as the exchange rate regime and capital flows in determining the transmission of business cycles.

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Paper provided by Bank of Canada in its series Working Papers with number 04-44.

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Length: 32 pages
Date of creation: 2004
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Handle: RePEc:bca:bocawp:04-44

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Related research
Keywords: International topics; Exchange rate regimes; Transmission of monetary policy;

Find related papers by JEL classification:
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General
E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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  1. Clarida, Richard & Galí, Jordi, 1994. "Sources of Real Exchange Rate Fluctuations: How Important are Nominal Shocks?," CEPR Discussion Papers 951, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1994. "The capital inflows problem: Concepts and issues," MPRA Paper 13902, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  3. Michael A. Kouparitsas, 1996. "North-South business cycles," Working Paper Series, Macroeconomic Issues WP-96-9, Federal Reserve Bank of Chicago. [Downloadable!]
  4. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-73, September. [Downloadable!] (restricted)
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  5. Atish R. Ghosh & Anne-Marie Gulde & Jonathan D. Ostry & Holger C. Wolf, 1997. "Does The Nominal Exchange Rate Regime Matter?," Working Papers 97-09, New York University, Leonard N. Stern School of Business, Department of Economics.
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  6. Alexander W. Hoffmaister & Jorge Roldos, 1996. "The Sources of Macroeconomic Fluctuations in Developing Countries: Brazil and Korea," IMF Working Papers 96/20, International Monetary Fund.
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  7. Matthew D. Shapiro & Mark W. Watson, 1988. "Sources of Business Cycle Fluctuations," Cowles Foundation Discussion Papers 870, Cowles Foundation, Yale University. [Downloadable!]
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  8. Lucas, Robert E., 1977. "Understanding business cycles," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 5(1), pages 7-29, January. [Downloadable!] (restricted)
  9. Alexander W. Hoffmaister, 1997. "Macroeconomic Fluctuations in Sub-Saharan Africa," IMF Working Papers 97/82, International Monetary Fund.
  10. Agenor, Pierre-Richard & McDermott, C John & Prasad, Eswar S, 2000. "Macroeconomic Fluctuations in Developing Countries: Some Stylized Facts," World Bank Economic Review, Oxford University Press, vol. 14(2), pages 251-85, May. [Downloadable!]
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  11. Finn E. Kydland & Calos E.J.M.Zarazaga, 1997. "Is the business cycle of Argentina "different?"," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q IV, pages 21-36. [Downloadable!]
  12. Agenor, Pierre-Richard & Aizenman, Joshua, 1999. "Macroeconomic adjustment with segmented labor markets," Journal of Development Economics, Elsevier, vol. 58(2), pages 277-296, April. [Downloadable!] (restricted)
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