Productivity or Demand? Identifying Sources of Fluctuations in Small Open Economies
Business cycles in emerging markets are different than in developed economies: consumption fluctuates more than output and trade balance is strongly counter-cyclical. The two leading theories to account for those differences are: (i) permanent productivity shocks and (ii) interest rate shocks. I show movements in terms of trade can distinguish between these two theories. Expansionary productivity shocks reduce the relative price of country's exports. Expansionary interest rate shocks raise the relative price of country's exports. Application of this method to Mexican fluctuations in the 1990s yields results consistent with leading methods based on Bayesian inference. The difference is that in this paper identification relies on instantaneous response of price rather than long-run properties of quantities. Identification can be based on relatively short time series and the method can be applied to real-time events. The method is best suited for cases when manufacturing constitutes large portion of both exports and imports.
|Date of creation:||2012|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Constantino Hevia, 2011.
2011 Meeting Papers
1070, Society for Economic Dynamics.
- Juan Pablo Nicolini & Constantino Hevia, 2004. "Optimal Devaluations," Econometric Society 2004 Latin American Meetings 337, Econometric Society.
- Hevia, Constantino & Nicolini, Juan Pablo, 2009. "Optimal devaluations," Policy Research Working Paper Series 4926, The World Bank.
- Constantino Hevia & Juan Pablo Nicolini, 2013. "Optimal devaluations," Working Papers 702, Federal Reserve Bank of Minneapolis.
- Timothy J. Kehoe & Kim J. Ruhl, 2008.
"Are Shocks to the Terms of Trade Shocks to Productivity?,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 804-819, October.
- Timothy J. Kehoe & Kim J. Ruhl, 2007. "Are Shocks to the Terms of Trade Shocks to Productivity?," NBER Working Papers 13111, National Bureau of Economic Research, Inc.
- Timothy J. Kehoe & Kim Ruhl, 2008. "Data Appendix to "Are Shocks to the Terms of Trade Shocks to Productivity?"," Technical Appendices 07-40, Review of Economic Dynamics.
- Timothy J. Kehoe & Kim J. Ruhl, 2007. "Are shocks to the terms of trade shocks to productivity?," Staff Report 391, Federal Reserve Bank of Minneapolis.
- Roberto Chang & Andrés Fernández, 2010.
"On the Sources of Aggregate Fluctuations in Emerging Economies,"
NBER Working Papers
15938, National Bureau of Economic Research, Inc.
- Roberto Chang & Andrés Fernández, 2013. "On The Sources Of Aggregate Fluctuations In Emerging Economies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54, pages 1265-1293, November.
- Nguyen, Ha, 2011.
"Valuation effects with transitory and trend productivity shocks,"
Journal of International Economics,
Elsevier, vol. 85(2), pages 245-255.
- Nguyen, Ha, 2010. "Valuation effects with transitory and trend productivity shocks," Policy Research Working Paper Series 5174, The World Bank.
- Emine Boz & Christian Daude & C. Bora Durdu, 2011.
"Emerging Market Business Cycles Revisited: Learning about the Trend,"
Koç University-TUSIAD Economic Research Forum Working Papers
1110, Koc University-TUSIAD Economic Research Forum.
- Emine Boz & Christian Daude & Ceyhun Bora Durdu, 2008. "Emerging market business cycles revisited: learning about the trend," International Finance Discussion Papers 927, Board of Governors of the Federal Reserve System (U.S.).
- Constantino Hevia & Juan Pablo Nicolini, 2013. "Optimal Devaluations," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 61(1), pages 22-51, April.
When requesting a correction, please mention this item's handle: RePEc:red:sed012:187. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)
If references are entirely missing, you can add them using this form.