TY - JOUR
T1 - Emerging market business cycles
T2 - The cycle is the trend
AU - Aguiar, Mark
AU - Gopinath, Gita
N1 - Copyright:
Copyright 2011 Elsevier B.V., All rights reserved.
PY - 2007/2
Y1 - 2007/2
N2 - Emerging market business cycles exhibit strongly countercyclical current accounts, consumption volatility that exceeds income volatility, and "sudden stops" in capital inflows. These features contrast with developed small open economies. Nevertheless, we show that a standard model characterizes both types of markets. Motivated by the frequent policy regime switches observed in emerging markets, our premise is that these economies are subject to substantial volatility in trend growth. Our methodology exploits the information in consumption and net exports to identify the persistence of productivity. We find that shocks to trend growth - rather than transitory fluctuations around a stable trend - are the primary source of fluctuations in emerging markets. The key features of emerging market business cycles are then shown to be consistent with this underlying income process in an otherwise standard equilibrium model.
AB - Emerging market business cycles exhibit strongly countercyclical current accounts, consumption volatility that exceeds income volatility, and "sudden stops" in capital inflows. These features contrast with developed small open economies. Nevertheless, we show that a standard model characterizes both types of markets. Motivated by the frequent policy regime switches observed in emerging markets, our premise is that these economies are subject to substantial volatility in trend growth. Our methodology exploits the information in consumption and net exports to identify the persistence of productivity. We find that shocks to trend growth - rather than transitory fluctuations around a stable trend - are the primary source of fluctuations in emerging markets. The key features of emerging market business cycles are then shown to be consistent with this underlying income process in an otherwise standard equilibrium model.
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U2 - 10.1086/511283
DO - 10.1086/511283
M3 - Article
AN - SCOPUS:33947532208
VL - 115
SP - 69
EP - 102
JO - Journal of Political Economy
JF - Journal of Political Economy
SN - 0022-3808
IS - 1
ER -