Accounting for Output Drops in Latin America

March 1, 2009

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Format: Chicago

Ruy Lama. Accounting for Output Drops in Latin America, (USA: International Monetary Fund, 2009) accessed November 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper evaluates what type of models can account for the recent episodes of output drops in Latin America. I develop an open economy version of the business cycle accounting methodology (Chari, Kehoe, and McGrattan, 2007) in which output fluctuations are decomposed into four sources: total factor productivity (TFP), a labor wedge, a capital wedge, and a bond wedge. The paper shows that the most promising models are the ones that induce fluctuations of TFP and the labor wedge. On the other hand, models of fnancial frictions that translate into a bond or capital wedge are not successful in explaining output drops in Latin America. The paper also discusses the implications of these results for policy analysis using alternative DSGE models.

Subject: Bonds, Business cycles, Financial frictions, Labor, Total factor productivity

Keywords: Labor wedge, Open economy, Working capital, WP

Publication Details

Pages:

49
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2009/067
Stock No:

WPIEA2009067
ISBN:

9781451872149
ISSN:

1018-5941

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