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Emerging Market Business Cycles Revisited: Learning about the Trend

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  • Emine Boz

    ()
    (IMF)

  • Christian Daude

    ()
    (OECD)

  • C. Bora Durdu

    ()
    (FRB)

Abstract

We build an equilibrium business cycle model in which agents cannot perfectly distinguish between the permanent and transitory components of TFP shocks and learn about those components using the Kalman filter. Calibrated to Mexico, the model predicts a higher variability of consumption relative to output and a strongly negative correlation between the trade balance and output for a wide range of variability and persistence of permanent shocks vis-a-vis the transitory shocks. Moreover, our estimation for Mexico and Canada suggests more severe informational frictions in emerging markets than in developed economies.

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File URL: http://eaf.ku.edu.tr/sites/eaf.ku.edu.tr/files/erf_wp_1110.pdf
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Bibliographic Info

Paper provided by Koc University-TUSIAD Economic Research Forum in its series Koç University-TUSIAD Economic Research Forum Working Papers with number 1110.

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Length: 35 pages
Date of creation: Apr 2011
Date of revision:
Handle: RePEc:koc:wpaper:1110

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Keywords: emerging markets; business cycles; learning; Kalman filter;

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