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Emerging market business cycles: Learning about the trend

  • Boz, Emine
  • Daude, Christian
  • Bora Durdu, C.

Emerging market business cycles feature a higher variability of consumption relative to output and a strongly countercyclical trade balance. An equilibrium business cycle model in which agents learn to distinguish between the permanent and transitory components of total factor productivity shocks using the Kalman filter accounts for these features. Calibrated to Mexico, the model accounts for the behavior of consumption and the trade balance for a wide range of variability and persistence of permanent shocks relative to transitory shocks. Estimation for Mexico and Canada suggests more severe informational frictions in emerging markets than in developed economies.

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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 58 (2011)
Issue (Month): 6 ()
Pages: 616-631

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Handle: RePEc:eee:moneco:v:58:y:2011:i:6:p:616-631
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

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