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Medium Term Business Cycles in Developing Countries

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  • Diego A. Comin
  • Norman Loayza
  • Farooq Pasha
  • Luis Serven

Abstract

We build a two country asymmetric DSGE model with two features: (i) endogenous and slow diffusion of technologies from the developed to the developing country, and (ii) adjustment costs to investment flows. We calibrate the model to match the Mexico-U.S. trade and FDI flows. The model is able to explain the following stylized facts: (i) U.S. and Mexican output co-move more than consumption; (ii) U.S. shocks have a larger e¤ect on Mexico than in the U.S.; (iii) U.S. business cycles lead over medium term fluctuations in Mexico; (iv) Mexican consumption is more volatile than output.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15428.

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Date of creation: Oct 2009
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Handle: RePEc:nbr:nberwo:15428

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  1. Fabio Ghironi & Marc Melitz, 2004. "International Trade and Macroeconomic Dynamics with Heterogeneous Firms," 2004 Meeting Papers, Society for Economic Dynamics 451, Society for Economic Dynamics.
  2. Talan B. Iscan, 1998. "Financing Constraints and Investment Decline in Mexico," Department of Economics at Dalhousie University working papers archive, Dalhousie, Department of Economics fdis98, Dalhousie, Department of Economics.
  3. Bernard, Andrew & Jensen, J Bradford & Redding, Stephen J & Schott, Peter, 2007. "Firms in International Trade," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6277, C.E.P.R. Discussion Papers.
  4. Greenwood, J. & Hercowitz, Z. & Krusell, P., 1995. "Long-Run Implications of Investment-Specific Technological Change," UWO Department of Economics Working Papers, University of Western Ontario, Department of Economics 9510, University of Western Ontario, Department of Economics.
  5. Neumeyer, Pablo Andrés & Perri, Fabrizio, 2004. "Business Cycles in Emerging Economies: The Role of Interest Rates," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4482, C.E.P.R. Discussion Papers.
  6. Sanghamitra Das & Mark J. Roberts & James R. Tybout, 2001. "Market entry costs, producer heterogeneity and export dynamics," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers, Indian Statistical Institute, New Delhi, India 03-10, Indian Statistical Institute, New Delhi, India.
  7. Warner, Andrew M., 1994. "Mexico's investment collapse: debt or oil?," Journal of International Money and Finance, Elsevier, Elsevier, vol. 13(2), pages 239-256, April.
  8. Guillermo A. Calvo, 1998. "Capital Flows and Capital-Market Crises: The Simple Economics of Sudden Stops," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 35-54, November.
  9. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, American Economic Association, vol. 78(3), pages 402-17, June.
  10. Stokey, Nancy L, 1991. "The Volume and Composition of Trade between Rich and Poor Countries," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(1), pages 63-80, January.
  11. Andrew M. Warner, 1991. "Did the debt crisis cause the investment crisis?," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 418, Board of Governors of the Federal Reserve System (U.S.).
  12. Gaston Gelos & Alberto Isgut, 1999. "Fixed Capital Adjustment," IMF Working Papers 99/59, International Monetary Fund.
  13. R. Gaston Gelos & Alberto Isgut, 2001. "Fixed Capital Adjustment: Is Latin America Different?," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 717-726, November.
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Cited by:
  1. Correa-López Mónica & de Blas Beatriz, 2012. "International Transmission of Medium-Term Technology Cycles: Evidence from Spain as a Recipient Country," The B.E. Journal of Macroeconomics, De Gruyter, De Gruyter, vol. 12(1), pages 1-52, November.
  2. Diego A. Comin & Martí Mestieri, 2013. "Technology Diffusion: Measurement, Causes and Consequences," NBER Working Papers 19052, National Bureau of Economic Research, Inc.
  3. Wei Liao & Ana Maria Santacreu, 2012. "The Trade Comovement Puzzle and the Margins of International Trade," Working Papers 042012, Hong Kong Institute for Monetary Research.
  4. Queraltó, Albert, 2013. "A Model of Slow Recoveries from Financial Crises," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 1097, Board of Governors of the Federal Reserve System (U.S.).
  5. Choudhary, M. Ali & Hanif, M. Nadim & Khan, Sajawal & Rehman, Muhammad, 2010. "Procyclical Monetary Policy and Governance," MPRA Paper 27022, University Library of Munich, Germany.
  6. Kadish, Peter, 2010. "Are Large Multinational Companies Undervalued? Emerging Markets Perspective," MPRA Paper 24315, University Library of Munich, Germany.
  7. Ana Santacreu, 2012. "The Trade Comovement Puzzle and the Margins of International Trade," 2012 Meeting Papers, Society for Economic Dynamics 34, Society for Economic Dynamics.
  8. Paul Levine, 2012. "Policy focus: Monetary policy in an uncertain world: probability models and the design of robust monetary rules," Indian Growth and Development Review, Emerald Group Publishing, Emerald Group Publishing, vol. 5(1), pages 70-88, April.
  9. Asli Leblebicioglu & Kolver Hernandez, 2012. "The Transmission of US Shocks to Emerging Markets," 2012 Meeting Papers, Society for Economic Dynamics 316, Society for Economic Dynamics.

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