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Business Cycle Accounting in a Small Open Economy

Author

Listed:
  • Jacek Rothert

    (United States Naval Academy)

  • Mohammad Rahmati

    (Sharif University of Technology)

Abstract

Building on Chari et al. (2007), we develop a method to assess theories of business cycles in small open economies. We build a diagnostic economy with time-varying distortions (wedges), which measure the gap between model generated aggregates and the data. We introduce two new wedges, which allow us to fully account for the movements in the trade balance and the current account: (i) the trend-shock wedge and (ii) the debt price wedge. We show how various detailed models with frictions map to economy with new wedges. Finally, we empirically evaluate di erent theories of uctuations in emerging economies.

Suggested Citation

  • Jacek Rothert & Mohammad Rahmati, 2014. "Business Cycle Accounting in a Small Open Economy," Departmental Working Papers 46, United States Naval Academy Department of Economics.
    • Handle: RePEc:usn:usnawp:46
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    References listed on IDEAS

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    Cited by:

    1. Michaud, Amanda & Rothert, Jacek, 2018. "Redistributive fiscal policies and business cycles in emerging economies," Journal of International Economics, Elsevier, vol. 112(C), pages 123-133.
    2. Madanizadeh, Seyed Ali & Karimirad, Ali & Rahmati, Mohammad H., 2019. "Business cycle accounting of trade barriers in a small open economy," The Quarterly Review of Economics and Finance, Elsevier, vol. 71(C), pages 67-78.
    3. Lee E. Ohanian & Paulina Restrepo-Echavarria & Mark L. J. Wright, 2018. "Bad Investments and Missed Opportunities? Postwar Capital Flows to Asia and Latin America," American Economic Review, American Economic Association, vol. 108(12), pages 3541-3582, December.
    4. Lee Ohanian & Diana Van Patten & Mark Wright & Paulina Restrepo-Echavarria, 2019. "Bretton Woods and the Reconstruction of Europe," 2019 Meeting Papers 665, Society for Economic Dynamics.
    5. Lee E. Ohanian & Paulina Restrepo-Echavarria & Diana Van Patten & Mark L. J. Wright, 2020. "The Impact of Bretton Woods International Capital Controls on the Global Economy and the Value of Geopolitical Stability: A General Equilibrium Analysis," Working Papers 2020-042, Federal Reserve Bank of St. Louis, revised 15 Sep 2023.
    6. Chakraborty Suparna & Otsu Keisuke, 2013. "Business cycle accounting of the BRIC economies," The B.E. Journal of Macroeconomics, De Gruyter, vol. 13(1), pages 1-33, September.

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