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Informality and international business cycles

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  • Yépez, Carlos A.

Abstract

We examine the role of informal production in the international transmission of shocks. Our novel contribution is to show that informal production has an important impact on the observed cyclical properties of consumption, employment, and trade, which is effected through expenditure switching and labor re-allocation in response to productivity shocks. As such, the presence of an informal sector helps rationalize distinct empirical regularities that differentiate emerging from advanced economies. Our quantitative results highlight key structural aspects of the informal sector that are informative for the conduct of stabilization and labor market policy in emerging economies. The model is quantitatively assessed for the case of México vis-à-vis the U.S.

Suggested Citation

  • Yépez, Carlos A., 2019. "Informality and international business cycles," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 62(C), pages 252-263.
  • Handle: RePEc:eee:intfin:v:62:y:2019:i:c:p:252-263
    DOI: 10.1016/j.intfin.2019.08.001
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    More about this item

    Keywords

    International finance; Business cycles; Open economy; Informality; Emerging market economies;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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