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The Business Cycle in a Financially Deregulated Context: Theory and Evidence

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Abstract

This article proposes Minsky's financial instability hypothesis (FIH) as a theoretical underpinning for a three-regime business cycles model. Further, it is argued that the development of the FIH for open, developing economies (FIH-ODE) provides a better understanding of the performance of business cycles in these economies, particularly during the last two decades. In support of these claims, a three-regime autoregressive Markov switching model is estimated from 1980q1 to 2000q4 to Mexico's quarterly real GDP to investigate its business cycle behaviour. The estimated probabilities of the high and medium growth regimes suggest, for example, that after the financial liberalisation programme was fully launched, in the late 1980s, the economy shifted from the regime of medium to high growth (and vice versa) swiftly, reflecting its dependence on capital flows. Furthermore, the estimated parameters indicate that the average length of the business cycle has not changed.
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  • M Cruz, 2003. "The Business Cycle in a Financially Deregulated Context: Theory and Evidence," Economics Discussion Paper Series 0331, Economics, The University of Manchester.
    • Handle: RePEc:man:sespap:0331
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    1. Dapontas Dimitrios & Evangelopoulos Panagiotis, 2013. "Has the NAFTA Foundation Affected Business Cycles Length? An Introduction," Scientific Annals of Economics and Business, Sciendo, vol. 60(1), pages 145-153, July.

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    More about this item

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • 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
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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