Emerging Market Business Cycles: The Cycle is the Trend

Posted: 7 Feb 2007

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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Emerging market business cycles exhibit strongly countercyclical current accounts, consumption volatility that exceeds income volatility, and "sudden stops" in capital inflows. These features contrast with developed small open economies. Nevertheless, we show that a standard model characterizes both types of markets. Motivated by the frequent policy regime switches observed in emerging markets, our premise is that these economies are subject to substantial volatility in trend growth. Our methodology exploits the information in consumption and net exports to identify the persistence of productivity. We find that shocks to trend growth--rather than transitory fluctuations around a stable trend--are the primary source of fluctuations in emerging markets. The key features of emerging market business cycles are then shown to be consistent with this underlying income process in an otherwise standard equilibrium model.

Suggested Citation

Aguiar, Mark and Gopinath, Gita, Emerging Market Business Cycles: The Cycle is the Trend. Journal of Political Economy, Vol. 115, pp. 69-102, February 2007, Available at SSRN: https://ssrn.com/abstract=961832

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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