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Endogenous Time-Varying Volatility and Emerging Market Business Cycles

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  • Jan-Philipp Dueber

Abstract

Time-varying volatility plays a crucial role in understanding business cycles in emerging market economies. However, the literature treats volatility as an exogenous process. This paper endogenizes time-varying volatility in the debt premium and total factor productivity into a standard small open economy model and assesses the quality of the model by comparing it to emerging market data. An additional volatility channel that operates through the debt premium on the interest rate faced by a small open economy can generate countercyclical net exports and excess volatility in consumption as observed in data on emerging market business cycles.

Suggested Citation

  • Jan-Philipp Dueber, 2018. "Endogenous Time-Varying Volatility and Emerging Market Business Cycles," Studies in Economics 1811, School of Economics, University of Kent.
    • Handle: RePEc:ukc:ukcedp:1811
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    References listed on IDEAS

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    Cited by:

    1. Özge Akinci, 2021. "Financial Frictions and Macro‐Economic Fluctuations in Emerging Economies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 53(6), pages 1267-1312, September.

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    More about this item

    Keywords

    Endogenous Volatility; DSGE; Emerging Markets;
    All these keywords.

    JEL classification:

    • 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
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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