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Business Cycle Accounting in a Small Open Economy

Author

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  • Jacek Rothert

    () (United States Naval Academy)

  • Mohammad Rahmati

    (Sharif University of Technology)

Abstract

Building on Chari et al. (2007), we develop a method to assess theories of business cycles in small open economies. We build a diagnostic economy with time-varying distortions (wedges), which measure the gap between model generated aggregates and the data. We introduce two new wedges, which allow us to fully account for the movements in the trade balance and the current account: (i) the trend-shock wedge and (ii) the debt price wedge. We show how various detailed models with frictions map to economy with new wedges. Finally, we empirically evaluate di erent theories of uctuations in emerging economies.

Suggested Citation

  • Jacek Rothert & Mohammad Rahmati, 2014. "Business Cycle Accounting in a Small Open Economy," Departmental Working Papers 46, United States Naval Academy Department of Economics.
  • Handle: RePEc:usn:usnawp:46
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    File URL: http://www.usna.edu/EconDept/RePEc/usn/wp/usnawp46.pdf
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    References listed on IDEAS

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    1. Masaru Inaba & Kengo Nutahara, 2012. "An application of business cycle accounting with misspecified wedges," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(2), pages 265-269, April.
    2. 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.
    3. Hevia, Constantino, 2014. "Emerging market fluctuations: What makes the difference?," Journal of International Economics, Elsevier, vol. 94(1), pages 33-49.
    4. 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.
    5. Simona E. Cociuba & Alexander Ueberfeldt, 2008. "Driving Forces of the Canadian Economy: An Accounting Exercise," Staff Working Papers 08-14, Bank of Canada.
    6. Ruy Lama, 2011. "Accounting for Output Drops in Latin America," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(2), pages 295-316, April.
    7. Kehoe, Timothy J. & Ruhl, Kim J., 2009. "Sudden stops, sectoral reallocations, and the real exchange rate," Journal of Development Economics, Elsevier, vol. 89(2), pages 235-249, July.
    8. Roman Sustek, 2011. "Monetary Business Cycle Accounting," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(4), pages 592-612, October.
    9. Masaru Inaba & Kengo Nutahara, 2012. "An application of business cycle accounting with misspecified wedges," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(2), pages 265-269, April.
    10. Maloney, William F, 1999. "Does Informality Imply Segmentation in Urban Labor Markets? Evidence from Sectoral Transitions in Mexico," World Bank Economic Review, World Bank Group, vol. 13(2), pages 275-302, May.
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    Cited by:

    1. Chakraborty Suparna & Otsu Keisuke, 2013. "Business cycle accounting of the BRIC economies," The B.E. Journal of Macroeconomics, De Gruyter, vol. 13(1), pages 1-33, September.
    2. Ohanian, Lee E. & Restrepo-Echavarria, Paulina & Wright, Mark L. J., 2015. "Bad Investments and Missed Opportunities? Postwar Capital Flows to Asia and Latin America," Working Paper Series WP-2015-8, Federal Reserve Bank of Chicago, revised 04 Nov 2015.
    3. repec:eee:inecon:v:112:y:2018:i:c:p:123-133 is not listed on IDEAS

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