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Testing Real Business Cycle Models in an Emerging Economy

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  • Raphael Bergoeing

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  • Raimundo Soto

Abstract

RBC models have been successfull when applied to developed economies: their abilities in replicating the data of emerging countries remain largely unexplored. The rapid but unstable growth process in developing countries and their relatively less developed market structure pose a formidable challenge to neoclessical general equilibrium models. Using data of the Chilean economy, we explore the effect of market rigidities and macroeconomic policies on the dynamics of consumption, investment, inflation and factor markets. We find that business cycles models replicate much of the observed fluctuations of real and monetary variables in the Chilean economy, depite its idiosyncratic economic structure. Using a calibrated model we find that technology shocks, fiscal policies and labor market rigidities are the main sources of economic cycles, while monetary policies and wage indexation play a minor role. Econometric tests support the use of our calibrated model as an adequate representation of the Chilean data.

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Paper provided by Centro de Economía Aplicada, Universidad de Chile in its series Documentos de Trabajo with number 126.

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Date of creation: 2002
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Handle: RePEc:edj:ceauch:126

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  1. Raphael Bergoeing & Juan Enrique Suarez, 2001. "¿Qué Debemos Explicar? Reportando las Fluctuaciones Agregadas de la Economía Chilena," Revista de Analisis Economico – Economic Analysis Review, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines, vol. 16(1), pages 145-166, June.
  2. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April.
  3. Burnside, Craig & Eichenbaum, Martin & Rebelo, Sergio, 1993. "Labor Hoarding and the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 245-73, April.
  4. Watson, Mark W., 1986. "Univariate detrending methods with stochastic trends," Journal of Monetary Economics, Elsevier, vol. 18(1), pages 49-75, July.
  5. Guay, A & St-Amant, P, 1996. "Do Mechanical Filters Provide a Good Approximation of Business Cycles?," Working Papers-Department of Finance Canada 1996-2, Department of Finance Canada.
  6. Canova, Fabio, 1998. "Detrending and business cycle facts: A user's guide," Journal of Monetary Economics, Elsevier, vol. 41(3), pages 533-540, May.
  7. Canova, Fabio, 1998. "Detrending and business cycle facts," Journal of Monetary Economics, Elsevier, vol. 41(3), pages 475-512, May.
  8. Beveridge, Stephen & Nelson, Charles R., 1981. "A new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the `business cycle'," Journal of Monetary Economics, Elsevier, vol. 7(2), pages 151-174.
  9. Benhabib, Jess & Rogerson, Richard & Wright, Randall, 1991. "Homework in Macroeconomics: Household Production and Aggregate Fluctuations," Journal of Political Economy, University of Chicago Press, vol. 99(6), pages 1166-87, December.
  10. Hofman, Andre A, 2000. "Standardised Capital Stock Estimates in Latin America: A 1950-94 Update," Cambridge Journal of Economics, Oxford University Press, vol. 24(1), pages 45-86, January.
  11. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
  12. Rogerson, Richard & Wright, Randall, 1988. "Involuntary unemployment in economies with efficient risk sharing," Journal of Monetary Economics, Elsevier, vol. 22(3), pages 501-515.
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