On the Sources of Aggregate Fluctuations in Emerging Economies

29 Pages Posted: 15 Nov 2013

See all articles by Roberto Chang

Roberto Chang

Rutgers University, New Brunswick/Piscataway - Faculty of Arts and Sciences-New Brunswick/Piscataway - Department of Economics; National Bureau of Economic Research (NBER)

Andrés Fernàndez

Inter-American Development Bank (IDB) - Research Department

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Date Written: November 2013

Abstract

Recent research on macroeconomic fluctuations in emerging economies has advocated introducing a stochastic productivity trend or allowing for interest rate shocks and financial frictions. We estimate a model that encompasses these two approaches, shedding light on their relative merits and on how financial frictions affect the transmission of shocks. The model accounts for aggregate fluctuations by assigning a dominant role to financial frictions in amplifying conventional (temporary) productivity shocks, whereas trend shocks play a minor role. A link between spreads and expected future productivity emerges as essential for a reasonable approximation to the data.

Suggested Citation

Chang, Roberto and Fernandez, Andres, On the Sources of Aggregate Fluctuations in Emerging Economies (November 2013). International Economic Review, Vol. 54, Issue 4, pp. 1265-1293, 2013, Available at SSRN: https://ssrn.com/abstract=2354712 or http://dx.doi.org/10.1111/iere.12036

Roberto Chang (Contact Author)

Rutgers University, New Brunswick/Piscataway - Faculty of Arts and Sciences-New Brunswick/Piscataway - Department of Economics ( email )

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New Brunswick, NJ 08901
United States

National Bureau of Economic Research (NBER)

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Andres Fernandez

Inter-American Development Bank (IDB) - Research Department ( email )

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Washington, DC 20577
United States

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