IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Productivity or Demand? Identifying Sources of Fluctuations in Small Open Economies

  • Jacek Rothert

    (University of Texas, Austin)

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.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: https://www.economicdynamics.org/meetpapers/2012/paper_187.pdf
Download Restriction: no

Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 187.

as
in new window

Length:
Date of creation: 2012
Date of revision:
Handle: RePEc:red:sed012:187
Contact details of provider: Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Fax: 1-314-444-8731
Web page: http://www.EconomicDynamics.org/society.htm
Email:


More information through EDIRC

References listed on IDEAS
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.:

as in new window
  1. Burnside, Craig, 1998. "Detrending and business cycle facts: A comment," Journal of Monetary Economics, Elsevier, vol. 41(3), pages 513-532, May.
  2. Pablo A. Neumeyer & Fabrizio Perri, 2004. "Business cycles in emerging economies: the role of interest rates," Staff Report 335, Federal Reserve Bank of Minneapolis.
  3. Backus, David K. & Crucini, Mario J., 2000. "Oil prices and the terms of trade," Journal of International Economics, Elsevier, vol. 50(1), pages 185-213, February.
  4. Kraay, Aart & Ventura, Jaume, 1998. "Comparative advantage and the cross-section of business cycles," Policy Research Working Paper Series 1948, The World Bank.
  5. Correia, Isabel & Neves, Joao C & Rebelo, Sérgio, 1994. "Business Cycles in a Small Open Economy," CEPR Discussion Papers 996, C.E.P.R. Discussion Papers.
  6. Nguyen, Ha, 2011. "Valuation effects with transitory and trend productivity shocks," Journal of International Economics, Elsevier, vol. 85(2), pages 245-255.
  7. Kose, M. Ayhan, 2002. "Explaining business cycles in small open economies: 'How much do world prices matter?'," Journal of International Economics, Elsevier, vol. 56(2), pages 299-327, March.
  8. Juan Pablo Nicolini & Constantino Hevia, 2004. "Optimal Devaluations," Econometric Society 2004 Latin American Meetings 337, Econometric Society.
  9. Martin Uribe & Vivian Yue, 2004. "Country spreads and emerging countries: who drives whom?," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
  10. 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.
  11. Backus, David K & Kehoe, Patrick J & Kydland, Finn E, 1994. "Dynamics of the Trade Balance and the Terms of Trade: The J-Curve?," American Economic Review, American Economic Association, vol. 84(1), pages 84-103, March.
  12. Enrique G. Mendoza & Vivian Z. Yue, 2008. "A Solution to the Disconnect between Country Risk and Business Cycle Theories," NBER Working Papers 13861, National Bureau of Economic Research, Inc.
  13. 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.
  14. 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.
  15. Mendoza, Enrique G, 1991. "Real Business Cycles in a Small Open Economy," American Economic Review, American Economic Association, vol. 81(4), pages 797-818, September.
  16. Roberto Chang & Andrés Fernández, 2010. "On the Sources of Aggregate Fluctuations in Emerging Economies," NBER Working Papers 15938, National Bureau of Economic Research, Inc.
  17. Stephanie Schmitt-Grohe & Martin Uribe, 2002. "Closing Small Open Economy Models," NBER Working Papers 9270, National Bureau of Economic Research, Inc.
  18. Heathcote, Jonathan & Perri, Fabrizio, 2002. "Financial autarky and international business cycles," Journal of Monetary Economics, Elsevier, vol. 49(3), pages 601-627, April.
  19. Oviedo, P. Marcelo, 2005. "World Interest Rate, Business Cycles, and Financial Intermediation in Small Open Economies," Staff General Research Papers 12360, Iowa State University, Department of Economics.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

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 you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.