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Sectoral asymmetries in a small open economy

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  • Tiryaki, S. Tolga

Abstract

This paper explores the sectoral dimension of emerging market business cycles by building a two-sector small open economy real business cycle model featuring a working capital requirement, variable capital utilization and imported inputs in production. The primary finding is that the price of imported inputs and nontradable sector productivity are the two most important sources of macroeconomic fluctuations in a typical emerging market economy. Interest rates and the price of imported final goods also play a significant role in driving investment and import fluctuations. The model also produces significant sectoral asymmetry, especially in response to interest rate shocks. Variable capital utilization acts as a strong propagation mechanism.

Suggested Citation

  • Tiryaki, S. Tolga, 2014. "Sectoral asymmetries in a small open economy," Economic Modelling, Elsevier, vol. 43(C), pages 465-475.
    • Handle: RePEc:eee:ecmode:v:43:y:2014:i:c:p:465-475
    DOI: 10.1016/j.econmod.2014.09.011
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    More about this item

    Keywords

    Business cycles; Emerging markets; Imported inputs; Capital utilization;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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