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Time to produce and emerging market crises

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  • Felipe Schwartzman

Abstract

The opportunity cost of waiting for goods to be produced and sold increases with the cost of financing. This channel is evident in emerging market crises, when industries that use more inventories lose more of their output and lag behind in the recovery. An open economy model with lags in the production process ("time to produce") generates comparable cross-sectoral differences in response to a shock to the foreign interest rate and, in the year of the crisis, accounts for up to 25% of the deviation of output from its previous trend. In contrast, an equivalent model without time to produce generates a boom in the year of the crisis and cannot account for the cross-sectoral differences. Likewise, it is impossible to generate the cross-sectoral differences in response to a productivity shock.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Richmond in its series Working Paper with number 10-15.

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Date of creation: 2010
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Handle: RePEc:fip:fedrwp:10-15

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Keywords: Emerging markets ; Interest rates ; Business cycles;

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Cited by:
  1. Sangeeta Pratap & Carlos Urrutia, 2012. "Financial Frictions and Total Factor Productivity: Accounting for the Real Effects of Financial Crises," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(3), pages 336-358, July.
  2. Se-Jik Kim & Hyun Song Shin, 2013. "Working Capital, Trade and Macro Fluctuations," Working Papers 1465, Princeton University, Department of Economics, Center for Economic Policy Studies..
  3. Felipe Schwartzman, 2012. "When do credit frictions matter for business cycles?," Economic Quarterly, Federal Reserve Bank of Richmond, issue 3Q, pages 209-230.
  4. Lubik, Thomas A. & Sarte, Pierre-Daniel G. & Schwartzman, Felipe, 2014. "What Inventory Behavior Tells Us About How Business Cycles Have Changed," Working Paper 14-6, Federal Reserve Bank of Richmond.

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