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Real Business Cycles in Emerging Countries?

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  • Javier García-Cicco
  • Roberto Pancrazi
  • Martín Uribe

Abstract

We use more than one century of Argentine and Mexican data to estimate the structural parameters of a small-open-economy real-business-cycle model driven by nonstationary productivity shocks. We find that the RBC model does a poor job at explaining business cycles in emerging countries. We then estimate an augmented model that incorporates shocks to the country premium and financial frictions. We find that the estimated financial-friction model provides a remarkably good account of business cycles in emerging markets and, importantly, assigns a negligible role to nonstationary productivity shocks.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12629.

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Date of creation: Oct 2006
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Handle: RePEc:nbr:nberwo:12629

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  1. Tauchen, George, 1985. "Diagnostic testing and evaluation of maximum likelihood models," Journal of Econometrics, Elsevier, vol. 30(1-2), pages 415-443.
  2. Uribe, Martin & Yue, Vivian Z., 2006. "Country spreads and emerging countries: Who drives whom?," Journal of International Economics, Elsevier, vol. 69(1), pages 6-36, June.
  3. Pablo A. Neumeyer & Fabrizio Perri, 2001. "Business Cycles in Emerging Economies:The Role of Interest Rates," Working Papers 01-12, New York University, Leonard N. Stern School of Business, Department of Economics.
  4. Timothy Cogley & James M. Nason, 1993. "Output dynamics in real business cycle models," Working Papers in Applied Economic Theory 93-10, Federal Reserve Bank of San Francisco.
  5. Mark Aguiar & Gita Gopinath, 2007. "Emerging Market Business Cycles: The Cycle Is the Trend," Journal of Political Economy, University of Chicago Press, vol. 115, pages 69-102.
  6. Finn E. Kydland & Carlos E.J.M. Zarazaga, 2001. "Argentina's lost decade," Center for Latin America Working Papers 0401, Federal Reserve Bank of Dallas.
  7. Reinhart, Carmen M. & Vegh, Carlos A., 1995. "Nominal interest rates, consumption booms, and lack of credibility: A quantitative examination," Journal of Development Economics, Elsevier, vol. 46(2), pages 357-378, April.
  8. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
  9. Susanto Basu & Alan M. Taylor, 1999. "Business Cycles in International Historical Perspective," NBER Working Papers 7090, National Bureau of Economic Research, Inc.
  10. Finn E. Kydland & Carlos E. J. M. Zarazaga, 2002. "Online Appendix to Argentina's Lost Decade and the Subsequent Recovery Puzzle," Technical Appendices kydland02, Review of Economic Dynamics.
  11. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
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  1. On Powerful Macroeconomic Concepts: Consumption Smoothing
    by paragwaknis in Musings of the Sorts on 2013-03-29 01:04:36
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