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Emerging economy business cycles: Financial integration and terms of trade shocks

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  • Bhattacharya, Rudrani

    ()
    (National Institute of Public Finance and Policy)

  • Patnaik, Ila

    ()
    (National Institute of Public Finance and Policy)

  • Pundit, Madhavi

    ()
    (Economics and Research Department, Asian Development Bank)

Abstract

This paper analyses the extent to which financial integration impacts the manner in which terms of trade affct business cycles in emerging economies. Using a small open economy model, we show that as capital account openness increases in an economy that faces trade shocks, business cycle volatility reduces. For an economy with limited financial openness, and a relatively open trade account, a model with exogenous terms of trade shocks is able to replicate the features of the business cycle.

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Bibliographic Info

Paper provided by National Institute of Public Finance and Policy in its series Working Papers with number 13/120.

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Length: 25
Date of creation: Mar 2013
Date of revision:
Handle: RePEc:npf:wpaper:13/120

Note: Working Paper 120, 2013
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Web page: http://www.nipfp.org.in

Related research

Keywords: Macroeconomics ; Real business cycles ; Emerging market DSGE models ; Volatility ; Terms of trade ; Financial integration;

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