NDLI: Emerging Economy Business Cycles: Interest Rate Shocks vs Trend Shocks

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Emerging Economy Business Cycles: Interest Rate Shocks vs Trend Shocks

Content Provider	Scilit
Author	Letendre, Marc-Andre Obaid, Sabreena
Copyright Year	2019
Description	Journal: SSRN Electronic Journal The recent literature studying the source of business cycles in emerging market economies (EMEs) has debated the relative importance of productivity trend shocks versus interest rate shocks coupled with financial frictions. Importantly, the papers where an important role was assigned to interest rate shocks did not force their models to match the historical paths of the world or country interest rate. This could have led to poorly identified interest rate shocks and inaccurate measures of contributions of shocks to EME business cycles. To address this issue, we estimate a small open economy model for Argentina and Mexico using Bayesian methods where world and country interest rate series are included as observables. This estimation strategy brings quantitative accuracy by imposing discipline on the estimated shocks. Although we find evidence in favour of both shocks, including interest rates as observables, shifts explanatory power away from trend shocks towards interest rate shocks.
Related Links	http://socialsciences.mcmaster.ca/econ/rsrch/papers/archive/2019-07.pdf https://papers.ssrn.com/sol3/Delivery.cfm?abstractid=3419107
ISSN	10914358
e-ISSN	15565068
DOI	10.2139/ssrn.3419107
Journal	SSRN Electronic Journal
Language	English
Publisher	Elsevier BV
Publisher Date	2019-07-12
Access Restriction	Open
Subject Keyword	Journal: SSRN Electronic Journal Mathematical Social Sciences Business Fluctuations Financial Markets
Content Type	Text
Resource Type	Article
Subject	Public Health, Environmental and Occupational Health Psychiatry and Mental Health

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