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Investment Specific Technology Shocks and Emerging Market Business Cycle Dynamics

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  • Aydan Dogan

    (Universitat de Barcelona)

Abstract

This article explores the role of investment specific technology shocks for emerging market business cycle fluctuations. The analysis is motivated by two key empirical facts; the presence of investment specific technical change in the post-war US economy together with the importance of investment goods for the emerging market imports. The goal of this paper is to quantify the contribution of the investment specific technical change in the US for the business cycles of an emerging country in the context of a two country, two sector international real business cycle framework with investment and consumption goods sectors. We estimate the model for Mexico and US data and find that a permanent US originating investment specific technology shock is very important in explaining the Mexican output and investment dynamics. This shock explains around 80\% of the investment variability and it accounts for the around 45\% of the output variability. We argue that the model's ability to account for the important business cycle features of the data is dependent on the presence of shocks that capture financial frictions as well as a permanent investment specific technology shock that originates in the US.

Suggested Citation

  • Aydan Dogan, 2017. "Investment Specific Technology Shocks and Emerging Market Business Cycle Dynamics," UB School of Economics Working Papers 2017/359, University of Barcelona School of Economics.
    • Handle: RePEc:ewp:wpaper:359web
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    File URL: http://hdl.handle.net/2445/109961
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    4. Pierre-Richard Agénor & Timothy P. Jackson & Luiz Pereira da Silva, 2020. "Cross-Border Regulatory Spillovers and Macroprudential Policy Coordination," Working Papers 202028, University of Liverpool, Department of Economics.
    5. Germaschewski, Yin & Horvath, Jaroslav & Rubini, Loris, 2021. "Property rights, expropriations, and business cycles in China," Journal of Economic Dynamics and Control, Elsevier, vol. 125(C).
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    7. Christoph Gortz & Konstantinos Theodoridis & Christoph Thoenissen, 2023. "The Anatomy of Small Open Economy Productivity Trends," Discussion Papers 23-05, Department of Economics, University of Birmingham.
    8. Seunghoon Na & Hyunseung Oh, 2020. "Computerizing Households and the Role of Investment-Specific Productivity in Business Cycles," International Finance Discussion Papers 1292, Board of Governors of the Federal Reserve System (U.S.).

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    More about this item

    Keywords

    Emerging markets; Investment specific technology shocks; International real business cycles.;
    All these keywords.

    JEL classification:

    • 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
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General

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