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The Anatomy of Emerging-Market Business Cycles: Global Financial Shocks and Supply-Like Transmission

Author

Listed:
  • Gambetti, Luca
  • Petrella, Ivan
  • Pollastri, Alessandro
  • Santoro, Emiliano

Abstract

We investigate the business-cycle anatomy of emerging and developing economies (EMDEs) and find that their dominant cyclical shock is global in origin but supply-like in transmission. The shock is closely related to global risk conditions and movements in export and import prices. It generates broad expansions, raises total factor productivity, and does not increase inflation. Yet its footprint is concentrated at business-cycle rather than low frequencies, so the productivity-like behavior of EMDE cycles is not evidence that the dominant shock is a primitive technology or trend shock. We rationalize the evidence through a mechanism that links global financial easing to cross-firm reallocation: lower working-capital costs benefit more productive firms disproportionately, shift resources toward them, generate procyclical total factor productivity, and amplify aggregate activity. The results identify a supply-side channel of global-financial-cycle transmission in EMDEs.

Suggested Citation

  • Gambetti, Luca & Petrella, Ivan & Pollastri, Alessandro & Santoro, Emiliano, 2026. "The Anatomy of Emerging-Market Business Cycles: Global Financial Shocks and Supply-Like Transmission," CEPR Discussion Papers 21536, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:21536
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    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
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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