Sources of Fluctuations: The Case of MENA
Hosei University; Japan Center for Economic Research
M. Ayhan Kose
International Monetary Fund (IMF)
Sunghyun Henry Kim
Suffolk University - Department of Economics; Sungkyunkwan University - Department of Economics
We analyze the sources of macroeconomic fluctuations in the emerging countries in the Middle East and North Africa (MENA) region using a dynamic stochastic general equilibrium model. The model economy captures some important structural characteristics of the MENA countries and is able to replicate the main properties of their business cycles. The results suggest that a substantial fraction of cyclical fluctuations in the MENA countries is explained by terms of trade shocks. In particular, these shocks account for more than 60 percent of the variation in aggregate output. They also explain the bulk of cyclical fluctuations in aggregate consumption. Domestic productivity shocks explain close to 40 percent of business cycle variation in aggregate output. While government spending shocks and world interest shocks are also important in accounting for the volatility of business cycles in certain macroeconomic variables, their overall impact on the dynamics of aggregate output appears to be relatively small.
Number of Pages in PDF File: 30
Keywords: MENA, business cycles, macroeconomic fluctuations, globalization, emerging markets
JEL Classification: E32, F22
Date posted: October 5, 2005
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