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Output Volatility and Large Output Drops in Emerging Market and Developing Countries

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  • Dalia Hakura

Abstract

This paper establishes that output volatility and the size of output drops have declined across all countries over the past three decades, but remain 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 result from lower country-specific volatility and more benign country-specific events. Evidence from cross-section regressions over the 1970-2003 period suggest that discretionary fiscal spending volatility, and terms of trade volatility together with exchange rate flexibility are key determinants of volatility and large output drops.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/114.

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Length: 32
Date of creation: 01 May 2007
Date of revision:
Handle: RePEc:imf:imfwpa:07/114

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Related research

Keywords: Developing countries; Gross domestic product; Production; Emerging markets; output growth; output volatility; fiscal policy; terms of trade; government spending; discretionary fiscal policy; exchange rate regime; per capita growth rate; trade openness; fiscal spending; trade shocks; terms of trade shocks; factor analysis; government expenditure; exchange rate regimes; exchange rate policy; fiscal policy variables; fiscal policies; external shocks; exporting countries; stable fiscal policy; fiscal responsibility; exchange rate policies; per capita income; balance of payments; industry trade; expenditure restraint; public debt; fiscal stance; fiscal responsibility laws; oil prices; idiosyncratic factors; discretionary fiscal policies; budgetary institutions;

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  1. Lane, Philip R., 2003. "The cyclical behaviour of fiscal policy: evidence from the OECD," Journal of Public Economics, Elsevier, vol. 87(12), pages 2661-2675, December.
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Cited by:
  1. Aizenman, Joshua & Chinn, Menzie & Ito, Hiro, 2010. "The Financial Crisis, Rethinking of the Global Financial Architecture, and the Trilemma," ADBI Working Papers 213, Asian Development Bank Institute.
  2. Joshua Aizenman & Menzie D. Chinn & Hiro Ito, 2008. "Assessing the Emerging Global Financial Architecture: Measuring the Trilemma's Configurations over Time," NBER Working Papers 14533, National Bureau of Economic Research, Inc.
  3. Spiliopoulos, Leonidas, 2010. "The determinants of macroeconomic volatility: A Bayesian model averaging approach," MPRA Paper 26832, University Library of Munich, Germany.
  4. Dalia Hakura & Ralph Chami & Peter Montiel, 2009. "Remittances," IMF Working Papers 09/91, International Monetary Fund.
  5. Klomp, Jeroen & de Haan, Jakob, 2009. "Political institutions and economic volatility," European Journal of Political Economy, Elsevier, vol. 25(3), pages 311-326, September.

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