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

39 Pages Posted: 14 Jun 2011

See all articles by Fernando Alvarez-Parra

Fernando Alvarez-Parra

Government of Venezuela - Central Bank of Venezuela

Manuel Toledo

Universidad Carlos III de Madrid - Department of Economics

Luis Brandao-Marques

International Monetary Fund - Monetary and Capital Markets Department

Date Written: June 2011

Abstract

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.

Keywords: Business cycles, Consumer goods, Economic models, Emerging markets, External shocks

Suggested Citation

Alvarez-Parra, Fernando and Toledo, Manuel and Brandao-Marques, Luis, Business Cycles in Emerging Markets: The Role of Durable Goods and Financial Frictions (June 2011). IMF Working Papers, Vol. , pp. 1-38, 2011. Available at SSRN: https://ssrn.com/abstract=1864436

Fernando Alvarez-Parra

Government of Venezuela - Central Bank of Venezuela

Apartado 2017, Carmelite
Caracas, 1010
Venezuela

Manuel Toledo (Contact Author)

Universidad Carlos III de Madrid - Department of Economics ( email )

Calle Madrid 126
Getafe, Madrid 28903
Spain

Luis Brandao-Marques

International Monetary Fund - Monetary and Capital Markets Department ( email )

700 19th Street, N.W.
Washington, DC 20431
United States
2026238308 (Phone)
2025898308 (Fax)

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