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

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  • 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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    Cited by:

    1. 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.
    2. Ghate, Chetan & Gopalakrishnan, Pawan & Tarafdar, Suchismita, 2016. "Fiscal policy in an emerging market business cycle model," The Journal of Economic Asymmetries, Elsevier, vol. 14(PA), pages 52-77.
    3. Erauskin, Iñaki & Gardeazabal, Javier, 2017. "The terms of trade, the external balance, and the size of the net foreign asset position," International Review of Economics & Finance, Elsevier, vol. 50(C), pages 245-260.
    4. Jalali-Naini, Ahmad Reza & Naderian, Mohammad Amin, 2020. "Financial vulnerability, fiscal procyclicality and inflation targeting in developing commodity exporting economies," The Quarterly Review of Economics and Finance, Elsevier, vol. 77(C), pages 84-97.
    5. Nyang`oro Owen, 2017. "Working Paper 285 - Capital Inflows and Economic Growth in Sub-Saharan Africa," Working Paper Series 2409, African Development Bank.
    6. 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.
    7. Adegbemi Babatunde Onakoya & Adedotun Victor Seyingbo, 2017. "Financial Markets Integration: Appraising the Developed and Emerging Markets Nexus," International Journal of Economics and Financial Issues, Econjournals, vol. 7(3), pages 613-624.
    8. 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.
    9. Aparna Bhatia & Siya Tuli, 2017. "Sustainability Reporting under G3 Guidelines: A Study on Constituents of Bovespa Index," Vision, , vol. 21(2), pages 204-213, June.

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    More about this item

    Keywords

    Macroeconomics ; Real business cycles ; Emerging market DSGE models ; Volatility ; Terms of trade ; Financial integration;
    All these keywords.

    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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