Do institutions matter for economic fluctuations? Weak property rights in a business cycle model for Mexico

Konstantinos Angelopoulos (), George Economides and Vanghelis Vassilatos ()

Working Papers from Business School - Economics, University of Glasgow

Abstract: This paper shows that introducing weak property rights in the standard real business cycle (RBC) model can help to explain economic fluctuations. This is motivated by the empirical observation that changes in institutions in emerging markets are related to the evolution of the main macroeconomic variables. In particular, in Mexico, the movements in productivity in the data are associated with changes in institutions, so that we can explain productivity shocks to a large extent as shocks to the quality of institutions. We find that the model with shocks to the degree of protection of property rights only - without technology shocks - can match the second moments in the data for Mexico well. In particular, the fit is better than that of the standard neoclassical model with full protection of property rights regarding the auto-correlations and cross-correlations in the data, especially those related to labor. Viewing productivity shocks as shocks to institutions is also consistent with the stylized fact of falling productivity and non-decreasing labor hours in Mexico over 1980-1994, which is a feature that the neoclassical model cannot match.

Keywords: Economic fluctuations; institutions; property rights. (search for similar items in EconPapers)
JEL-codes: D7 E32 E62 (search for similar items in EconPapers)
Date: 2008-12
New Economics Papers: this item is included in nep-dev, nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Do institutions matter for economic fluctuations? Weak property rights in a business cycle model for Mexico (2011)
Working Paper: Do institutions matter for economic fluctuations? Weak property rights in a business cycle model for Mexico (2008)
Working Paper: Do institutions matter for economic fluctuations? Weak property rights in a business cycle model for Mexico (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:gla:glaewp:2008_38

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