[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/eee/inecon/v94y2014i1p33-49.html
   My bibliography  Save this article

Emerging market fluctuations: What makes the difference?

Author

Listed:
  • Hevia, Constantino
Abstract
Aggregate fluctuations in emerging countries are different from those in developed countries. Using data from Mexico and Canada, this paper decomposes these differences in terms of reduced form shocks that affect aggregate efficiency and distort the decisions of households about how much to invest, consume, and work in a standard model of a small open economy. The decomposition exercise suggests that most of these differences are explained by fluctuations in aggregate efficiency, distortions in labor choices over the business cycle, and distortions in intertemporal consumption choices. Successful models for emerging markets fluctuations should include primitive shocks and frictions that generate these features. Models with financial frictions in the form of working capital constraints, possibly augmented with endogenous collateral constraints, are consistent with these findings.

Suggested Citation

  • Hevia, Constantino, 2014. "Emerging market fluctuations: What makes the difference?," Journal of International Economics, Elsevier, vol. 94(1), pages 33-49.
    • Handle: RePEc:eee:inecon:v:94:y:2014:i:1:p:33-49
    DOI: 10.1016/j.jinteco.2014.05.002
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0022199614000701
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jinteco.2014.05.002?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Schmitt-Grohe, Stephanie & Uribe, Martin, 2003. "Closing small open economy models," Journal of International Economics, Elsevier, vol. 61(1), pages 163-185, October.
    2. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Debt Intolerance," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 1-74.
    3. 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.
    4. Uribe, Martin & Yue, Vivian Z., 2006. "Country spreads and emerging countries: Who drives whom?," Journal of International Economics, Elsevier, vol. 69(1), pages 6-36, June.
    5. Hall, Robert E, 1997. "Macroeconomic Fluctuations and the Allocation of Time," Journal of Labor Economics, University of Chicago Press, vol. 15(1), pages 223-250, January.
    6. Timothy J. Kehoe & Kim J. Ruhl, 2008. "Are Shocks to the Terms of Trade Shocks to Productivity?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 804-819, October.
    7. Parkin, Michael, 1988. "A method for determining whether parameters in aggregative models are structural," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 215-252, January.
    8. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393, Elsevier.
    9. 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.
    10. Carlstrom, Charles T & Fuerst, Timothy S, 1997. "Agency Costs, Net Worth, and Business Fluctuations: A Computable General Equilibrium Analysis," American Economic Review, American Economic Association, vol. 87(5), pages 893-910, December.
    11. Mark Aguiar & Gita Gopinath, 2007. "Emerging Market Business Cycles: The Cycle Is the Trend," Journal of Political Economy, University of Chicago Press, vol. 115(1), pages 69-102.
    12. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
    13. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Végh, 2005. "When It Rains, It Pours: Procyclical Capital Flows and Macroeconomic Policies," NBER Chapters, in: NBER Macroeconomics Annual 2004, Volume 19, pages 11-82, National Bureau of Economic Research, Inc.
    14. Rotemberg, Julio J. & Woodford, Michael, 1999. "The cyclical behavior of prices and costs," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 16, pages 1051-1135, Elsevier.
    15. Timothy J. Kehoe & Kim J. Ruhl, 2008. "Are Shocks to the Terms of Trade Shocks to Productivity?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 804-819, October.
    16. Cristina Arellano, 2008. "Default Risk and Income Fluctuations in Emerging Economies," American Economic Review, American Economic Association, vol. 98(3), pages 690-712, June.
    17. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2007. "Business Cycle Accounting," Econometrica, Econometric Society, vol. 75(3), pages 781-836, May.
    18. Patrick J. Kehoe & Ellen R. McGrattan, 2005. "Sudden Stops and Output Drops," American Economic Review, American Economic Association, vol. 95(2), pages 381-387, May.
    19. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2002. "Accounting for the Great Depression (technical appendix)," Working Papers 619, Federal Reserve Bank of Minneapolis.
    20. Christiano, Lawrence J. & Gust, Christopher & Roldos, Jorge, 2004. "Monetary policy in a financial crisis," Journal of Economic Theory, Elsevier, vol. 119(1), pages 64-103, November.
    21. Finn E. Kydland & Carlos E. J. M. Zarazaga, 2002. "Argentina's Lost Decade," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(1), pages 152-165, January.
    22. Enrique G. Mendoza, 2008. "Sudden stops, financial crises and leverage: a Fisherian deflation of Tobin's Q," International Finance Discussion Papers 960, Board of Governors of the Federal Reserve System (U.S.).
    23. 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.
    24. Enrique G. Mendoza, 2010. "Sudden Stops, Financial Crises, and Leverage," American Economic Review, American Economic Association, vol. 100(5), pages 1941-1966, December.
    25. Christopher J. Erceg & Michael D. Bordo & Charles L. Evans, 2000. "Money, Sticky Wages, and the Great Depression," American Economic Review, American Economic Association, vol. 90(5), pages 1447-1463, December.
    26. 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.
    27. Neumeyer, Pablo A. & Perri, Fabrizio, 2005. "Business cycles in emerging economies: the role of interest rates," Journal of Monetary Economics, Elsevier, vol. 52(2), pages 345-380, March.
    28. Harold L. Cole & Lee E. Ohanian, 2004. "New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 112(4), pages 779-816, August.
    29. Robert Shimer, 2009. "Convergence in Macroeconomics: The Labor Wedge," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 280-297, January.
    30. Casey B. Mulligan, 2002. "A Century of Labor-Leisure Distortions," NBER Working Papers 8774, National Bureau of Economic Research, Inc.
    31. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2003. "Accounting for the Great Depression," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 27(Spr), pages 2-8.
    32. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-417, June.
    33. Finn E. Kydland & Carlos E. J. M. Zarazaga, 2002. "Argentina's Lost Decade," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(1), pages 152-165, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Matheus Cardoso Leal & Marcio Issao Nakane, 2022. "Brazilian economy in the 2000’s: A tale of two recessions," Working Papers, Department of Economics 2022_20, University of São Paulo (FEA-USP).
    2. David Kohn & Fernando Leibovici & Håkon Tretvoll, 2021. "Trade in Commodities and Business Cycle Volatility," American Economic Journal: Macroeconomics, American Economic Association, vol. 13(3), pages 173-208, July.
    3. Brinca, Pedro & João, Costa-Filho, 2021. "Output falls and the international transmission of crises," MPRA Paper 107297, University Library of Munich, Germany.
    4. Mara Leticia Rojas, 2020. "La economía argentina ayer y hoy: hechos estilizados y des-estilizados," Asociación Argentina de Economía Política: Working Papers 4400, Asociación Argentina de Economía Política.
    5. Pedro Brinca & João Ricardo Costa Filho & Francesca Loria, 2024. "Business cycle accounting: What have we learned so far?," Journal of Economic Surveys, Wiley Blackwell, vol. 38(4), pages 1276-1316, September.
    6. Roberto Duncan, 2015. "Simple models to understand and teach business cycle macroeconomics for emerging market and developing economies," Globalization Institute Working Papers 252, Federal Reserve Bank of Dallas.
    7. Brinca, Pedro & Costa-Filho, João, 2021. "Economic depression in Brazil: the 2014-2016 fall," MPRA Paper 107298, University Library of Munich, Germany.
    8. Kshitiz Mishra & Partha Chatterjee, 2021. "Monetary Business Cycle Accounting Analysis of Indian Economy," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 19(3), pages 471-491, September.
    9. Broadbent, Ben & Di Pace, Federico & Drechsel, Thomas & Harrison, Richard & Tenreyro, Silvana, 2019. "The Brexit vote, productivity growth and macroeconomic adjustments in the United Kingdom," Discussion Papers 51, Monetary Policy Committee Unit, Bank of England.
    10. Okubo, Masakatsu, 2023. "Model uncertainty, economic development, and welfare costs of business cycles," Journal of Macroeconomics, Elsevier, vol. 76(C).
    11. Jacek Rothert & Mohammad Rahmati, 2014. "Business Cycle Accounting in a Small Open Economy," Departmental Working Papers 46, United States Naval Academy Department of Economics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. Notz, Stefan & Rosenkranz, Peter, 2021. "Business cycles in emerging markets: The role of liability dollarization and valuation effects," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 424-450.
    3. Pedro Brinca & João Ricardo Costa Filho & Francesca Loria, 2024. "Business cycle accounting: What have we learned so far?," Journal of Economic Surveys, Wiley Blackwell, vol. 38(4), pages 1276-1316, September.
    4. Stefan Notz & Peter Rosenkranz, 2014. "Business cycles in emerging markets: the role of liability dollarization and valuation effects," ECON - Working Papers 163, Department of Economics - University of Zurich.
    5. Drechsel, Thomas & Tenreyro, Silvana, 2018. "Commodity booms and busts in emerging economies," Journal of International Economics, Elsevier, vol. 112(C), pages 200-218.
    6. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2007. "Business Cycle Accounting," Econometrica, Econometric Society, vol. 75(3), pages 781-836, May.
    7. Serdar Kabaca, 2011. "Labor Share Fluctuations in Emerging Markets: The Role of the Cost of Borrowing," Koç University-TUSIAD Economic Research Forum Working Papers 1122, Koc University-TUSIAD Economic Research Forum.
    8. Matheus Cardoso Leal & Marcio Issao Nakane, 2022. "Brazilian economy in the 2000’s: A tale of two recessions," Working Papers, Department of Economics 2022_20, University of São Paulo (FEA-USP).
    9. Ester Faia, 2007. "Welfare Implications of Capital Account Liberalization," CEIS Research Paper 92, Tor Vergata University, CEIS.
    10. Philippe Martin & Thomas Philippon, 2017. "Inspecting the Mechanism: Leverage and the Great Recession in the Eurozone," American Economic Review, American Economic Association, vol. 107(7), pages 1904-1937, July.
    11. Emine Boz & C. Bora Durdu & Nan Li, 2015. "Emerging Market Business Cycles: The Role of Labor Market Frictions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(1), pages 31-72, February.
    12. Fernández, Andrés & González, Andrés & Rodríguez, Diego, 2018. "Sharing a ride on the commodities roller coaster: Common factors in business cycles of emerging economies," Journal of International Economics, Elsevier, vol. 111(C), pages 99-121.
    13. Schwartzman, Felipe, 2014. "Time to produce and emerging market crises," Journal of Monetary Economics, Elsevier, vol. 68(C), pages 37-52.
    14. Richard E. Ericson & Xuan Liu, 2012. "Welfare effect of interest rate shocks and policy implications," Applied Financial Economics, Taylor & Francis Journals, vol. 22(22), pages 1899-1917, November.
    15. Albert Queraltó, 2013. "A Model of Slow Recoveries from Financial Crises," International Finance Discussion Papers 1097, Board of Governors of the Federal Reserve System (U.S.).
    16. Jacek Rothert & Mohammad Rahmati, 2014. "Business Cycle Accounting in a Small Open Economy," Departmental Working Papers 46, United States Naval Academy Department of Economics.
    17. Jacek Rothert, 2012. "Productivity or Demand? Identifying Sources of Fluctuations in Small Open Economies," 2012 Meeting Papers 187, Society for Economic Dynamics.
    18. Andrés Fernández & Adam Gulan, 2015. "Interest Rates, Leverage, and Business Cycles in Emerging Economies: The Role of Financial Frictions," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(3), pages 153-188, July.
    19. Andrés Fernández, 2010. "“Tropical” Real Business Cycles? A Bayesian Exploration," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, vol. 28(61), pages 60-105, August.
    20. Andrei Polbin & Sergey Drobyshevsky, 2014. "Developing a Dynamic Stochastic Model of General Equilibrium for the Russian Economy," Research Paper Series, Gaidar Institute for Economic Policy, issue 166P, pages 156-156.

    More about this item

    Keywords

    Business cycles; Small open economy; Country spreads; Financial frictions;
    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:inecon:v:94:y:2014:i:1:p:33-49. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505552 .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.