The Sources of Macroeconomic Fluctuations in Developing Countries: Brazil and Korea

IMF Working Papers, February 1, 1996

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The Sources of Macroeconomic Fluctuations in Developing Countries: Brazil and Korea

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Bibliographic details

• Authors: Jorge Roldos, Willy A Hoffmaister
• Published: February 1, 1996
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451922127.001

Overview

• Paper studies the sources of macroeconomic fluctuations in developing countries using a structural VAR approach.
• Identification uses long-run restrictions derived from a theoretical model of a small open economy encompassing a large number of macroeconomic paradigms; the short-run dynamics are unrestricted.
• Framework applied to Brazil and Korea.

Methodology

• Structural VAR approach with:
  • Long-run restrictions from a theoretical small open economy model.
  • Unrestricted short-run dynamics.

Key Findings

• Supply shocks are the main source of GDP fluctuations, even in the short run.
• Aggregate demand shocks:
  • Important in the short run in Brazil.
  • Not important in the short run in Korea.
• External shocks explain a small fraction of the variance of output.
• Real exchange rate is driven mainly by fiscal shocks.
• Nominal shocks appear to have little impact on output and the real exchange rate.

Subjects and Keywords

• Subject: Economic theory, Fiscal policy, Foreign exchange, Inflation, Oil prices, Prices, Real exchange rates, Supply shocks
• Keywords: effects of adjustment program, exchange rate, exchange rate shock, Inflation, inflation rate, input price, Korea's output response, linear transformation, Oil prices, open economy, Real exchange rates, Supply shocks, WP