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Medium Term Business Cycles in Developing Countries

Author

Listed:
  • Diego A. Comin

    (Harvard Business School, Business, Government and the International Economy Unit)

  • Norman Loayza

    (Economics Research, World Bank Group)

  • Farooq Pasha

    (Boston College, Economics)

  • Luis Serven

    (World Bank - Office of the Chief Economist)

Abstract

We build a two country asymmetric DSGE model with two features: (i) endogenous and slow diffusion of technologies from the developed to the developing country, and (ii) adjustment costs to investment flows. We calibrate the model to match the Mexico-U.S. trade and FDI flows. The model is able to explain the following stylized facts: (i) U.S. and Mexican output co-move more than consumption; (ii) U.S. shocks have a larger effect on Mexico than in the U.S.; (iii) U.S. business cycles lead over medium term fluctuations in Mexico; (iv) Mexican consumption is more volatile than output.

Suggested Citation

  • Diego A. Comin & Norman Loayza & Farooq Pasha & Luis Serven, 2009. "Medium Term Business Cycles in Developing Countries," Harvard Business School Working Papers 10-029, Harvard Business School, revised Sep 2010.
    • Handle: RePEc:hbs:wpaper:10-029
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    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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