Business Cycles in Emerging Markets: The Role of Durable Goods and Financial Frictions

Publication Date:

June 1, 2011

Electronic Access:

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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 examines how durable goods and financial frictions shape the business cycle of a small open economy subject to shocks to trend and transitory shocks. In the data, nondurable consumption is not as volatile as income for both developed and emerging market economies. The simulation of the model implies that shocks to trend play a less important role than previously documented. Financial frictions improve the ability of the model to match some key business cycle properties of emerging economies. A countercyclical borrowing premium interacts with the nature of durable goods delivering highly volatile consumption and very countercyclical net exports.

Series:

Working Paper No. 2011/133

Subject:

Business cycles Consumption Economic growth Economic theory Emerging and frontier financial markets Financial frictions Financial markets Income National accounts

English

Publication Date:

June 1, 2011

ISBN/ISSN:

9781455259380/1018-5941

Stock No:

WPIEA2011133

Pages:

38

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