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Emerging economy business cycles: Financial integration and terms of trade shocks

Author

Listed:
  • Bhattacharya, Rudrani

    () (National Institute of Public Finance and Policy)

  • Patnaik, Ila

    () (National Institute of Public Finance and Policy)

  • Pundit, Madhavi

    () (Economics and Research Department, Asian Development Bank)

Abstract

This paper analyses the extent to which financial integration impacts the manner in which terms of trade affct business cycles in emerging economies. Using a small open economy model, we show that as capital account openness increases in an economy that faces trade shocks, business cycle volatility reduces. For an economy with limited financial openness, and a relatively open trade account, a model with exogenous terms of trade shocks is able to replicate the features of the business cycle.

Suggested Citation

  • Bhattacharya, Rudrani & Patnaik, Ila & Pundit, Madhavi, 2013. "Emerging economy business cycles: Financial integration and terms of trade shocks," Working Papers 13/120, National Institute of Public Finance and Policy.
  • Handle: RePEc:npf:wpaper:13/120
    Note: Working Paper 120, 2013
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    References listed on IDEAS

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    1. Andrei A. Levchenko, 2005. "Financial Liberalization and Consumption Volatility in Developing Countries," IMF Staff Papers, Palgrave Macmillan, vol. 52(2), pages 237-259, September.
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    3. Javier Garcia-Cicco & Roberto Pancrazi & Martin Uribe, 2010. "Real Business Cycles in Emerging Countries?," American Economic Review, American Economic Association, vol. 100(5), pages 2510-2531, December.
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    5. von Hagen, Jürgen & Zhang, Haiping, 2006. "Financial openness and macroeconomic volatility," ZEI Working Papers B 02-2006, University of Bonn, ZEI - Center for European Integration Studies.
    6. Aguiar, Mark & Gopinath, Gita, 2007. "Emerging Market Business Cycles: The Cycle is the Trend," Scholarly Articles 11988098, Harvard University Department of Economics.
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    Citations

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    Cited by:

    1. Nyang`oro Owen, 2017. "Working Paper 285 - Capital Inflows and Economic Growth in Sub-Saharan Africa," Working Paper Series 2409, African Development Bank.
    2. Jalali Naini, Ahmad Reza & Naderian, Mohammad Amin, 2017. "Financial Vulnerability and Stabilization Policy in Commodity Exporting Emerging Economies," MPRA Paper 84481, University Library of Munich, Germany.
    3. Hüseyin Taştan & Bekir Aşık, 2014. "A Bayesian Estimation of Real Business-Cycle Models for the Turkish Economy," Ekonomi-tek - International Economics Journal, Turkish Economic Association, vol. 3(2), pages 27-50, May.
    4. Ghate, Chetan & Gopalakrishnan, Pawan & Tarafdar, Suchismita, 2014. "Fiscal Policy in an Emerging Market Business Cycle Model," MPRA Paper 60449, University Library of Munich, Germany.
    5. repec:eco:journ1:2017-03-82 is not listed on IDEAS
    6. Saif Al-Abri, Almukhtar, 2014. "How does terms-of-trade behavior shape international financial integration in primary-commodity exporting economies?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 33(C), pages 335-353.
    7. repec:eee:reveco:v:50:y:2017:i:c:p:245-260 is not listed on IDEAS

    More about this item

    Keywords

    Macroeconomics ; Real business cycles ; Emerging market DSGE models ; Volatility ; Terms of trade ; Financial integration;

    JEL classification:

    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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