The Sources of Macroeconomic Fluctuations in Developing Countries: Brazil and Korea

Author/Editor:

Jorge Roldos ; Willy A Hoffmaister

Publication Date:

February 1, 1996

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper studies the sources of macroeconomic fluctuations in developing countries using a structural VAR approach. Identification of the sources is achieved using long-run restrictions derived from a theoretical model of a small open economy encompassing a large number of macroeconomic paradigms; the short-run dynamics are unrestricted. This framework is applied to Brazil and Korea. The results confirm that supply shocks are the main source of GDP fluctuations, even in the short run. Aggregate demand shocks are shown to be important in the short run in Brazil, but not in Korea. External shocks explain a small fraction of the variance of output, whereas the real exchange rate is driven mainly by fiscal shocks. Nominal shocks appear to have little impact on output and the real exchange rate.

Series:

Working Paper No. 1996/020

Subject:

Economic theory Fiscal policy Foreign exchange Inflation Oil prices Prices Real exchange rates Supply shocks

English

Publication Date:

February 1, 1996

ISBN/ISSN:

9781451922127/1018-5941

Stock No:

WPIEA0201996

Pages:

42

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