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http://hdl.handle.net/2451/27347
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| Title: | Business Cycles in Emerging Economies: The Role of Interest Rates |
| Authors: | Neumeyer, Pablo A.
Perri, Fabrizio |
| Keywords: | Argentina
International business cycles
Country risk |
| Issue Date: | Nov-2001 |
| Series/Report no.: | S-MF-01-06 |
| Abstract: | This paper documents the empirical relation between the interest rates
that emerging economies face in international capital markets and their
business cycles. The dataset used in the study includes quarterly data
for Argentina during 1983-2000 and for Brazil, Mexico, Korea, and
Philippines, during 1994-2000. In this sample, interest rates are very
volatile, strongly countercyclical, and strongly positively correlated
with net exports. Output is very volatile and consumption is more
volatile than output. These regularities are common to all emerging
economies in the sample, but are not observed in a developed economy
such as Canada. The paper presents a dynamic general equilibrium model
of a small open economy, in which (i) firms have to pay for a fraction
of the input bill before production takes place, and in which (ii) the
labor supply is independent of consumption. Using a version of the
model calibrated to Argentina’s economy, we find that interest
rate shocks alone can explain 50% of output fluctuations and can
generate business cycle patterns consistent with the regularities
described above and with the major booms and recessions in Argentina in
the last two decades. We conclude that interest rates are an important
factor for explaining business cycles in emerging economies and further
research should be devoted to fully understand their determination. |
| URI: | http://hdl.handle.net/2451/27347 |
| Appears in Collections: | Macro Finance
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