Emerging Market Business Cycles: The Cycle is the Trend

44 Pages Posted: 9 Apr 2004

See all articles by Mark Aguiar

Mark Aguiar

Princeton University

Gita Gopinath

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

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Date Written: February 2004


We document and contrast features of the business cycle for emerging markets and developed small open economies. Current accounts are shown to be more strongly countercyclical and consumption is more volatile relative to income in emerging markets. Next we show that a standard dynamic stochastic small open economy model can account for the behavior of both types of markets once we appropriately model the decomposition of underlying productivity shocks into permanent and transitory shocks. When calibrated to the income process for each type of economy, we find that the predominance of shocks to trend growth relative to transitory shocks for emerging markets and the reverse for developed markets explains differences in key features of their business cycles. Lastly, we document empirically that shocks to trend generate a preponderance of income variance at business cycle frequencies in emerging markets, supporting the notion that the "cycle is the trend" for these economies.

Keywords: Emerging Market Business Cycles

JEL Classification: F41

Suggested Citation

Aguiar, Mark and Gopinath, Gita, Emerging Market Business Cycles: The Cycle is the Trend (February 2004). Available at SSRN: https://ssrn.com/abstract=527005 or http://dx.doi.org/10.2139/ssrn.527005

Mark Aguiar

Princeton University ( email )

Princeton, NJ 08544-1021
United States

Gita Gopinath (Contact Author)

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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