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“Tropical” Real Business Cycles? A Bayesian Exploration

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  • ANDRÉS FERNÁNDEZ

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Abstract

Can frictionless small open economy models drivensolely by technology shocks account for businesscycles in developing countries? We do not find evidenceof it. We build a DSGE model that jointly includesa variety of real perturbations in addition totechnology shocks, such as procyclical fiscal policies,terms of trade fluctuations, and perturbationsto the foreign interest rate coupled with financialfrictions. We estimate it using Bayesian methodson high and low frequency data from a developing-and tropical"- country, Colombia. We findinterest rate shocks to be crucial and that financialfrictions play a central role as propagating mechanismsof transitory technology shocks. These twodriving forces alone can account well for the observedproperties of the Colombian business cycle.Other structural shocks, such as terms of trade fluctuationsand level shifts in the technology process,do not appear to be relevant in the past decade anda half, but their importance increases when a longerspan of data is considered."

Suggested Citation

  • Andrés Fernández, 2010. "“Tropical” Real Business Cycles? A Bayesian Exploration," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE, vol. 28(61), pages 60-105, August.
  • Handle: RePEc:col:000107:008320
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    References listed on IDEAS

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    1. Finn E. Kydland & Carlos E. J. M. Zarazaga, 2002. "Argentina's Lost Decade," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(1), pages 152-165, January.
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    Cited by:

    1. Johana Maritsa Hernández Henao, 2013. "Demanda externa, términos de intercambio y el papel de la política monetaria durante la crisis de 2008," Documentos de Investigación - Research Papers 7, Centro de Estudios Monetarios Latinoamericanos, CEMLA.
    2. Roberto Chang & Andrés Fernández, 2013. "On The Sources Of Aggregate Fluctuations In Emerging Economies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54, pages 1265-1293, November.

    More about this item

    Keywords

    Business Cycles; Developing economies; dynamic stochastic general equilibriummodels; small open economy models; Bayesianestimation.;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General

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