Emerging Economy Business Cycles: Financial Integration and Terms of Trade Shocks

By Rudrani Bhattacharya, Ila Patnaik, Madhavi Pundit

May 22, 2013

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Format: Chicago

Rudrani Bhattacharya, Ila Patnaik, and Madhavi Pundit. Emerging Economy Business Cycles: Financial Integration and Terms of Trade Shocks, (USA: International Monetary Fund, 2013) accessed December 26, 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 analyses the extent to which financial integration impacts the manner in which terms of trade affect business cycles in emerging economies. Using a s mall open economy model, we show that as capital account openness increases in an economy that faces trade shocks, business cycle volatility reduces. For an economy with limited financial openness, and a relatively open trade account, a model with exogenous terms of trade shocks is able to replicate the features of the business cycle.

Subject: Balance of payments, Business cycles, Current account, Economic growth, Financial integration, Financial markets, International trade, Terms of trade, Trade balance

Keywords: A number of emerging economies, Africa, Business cycle volatility, Business cycles, Current account, Current account volatility, East Asia, Emerging market DSGE models, Financial integration, Global, Macroeconomics, Net barter terms of trade, Real business cycles, Terms of trade, Terms of trade fluctuation, Terms of trade shock, Terms of trade volatility, Tot shock, Trade balance, Volatility, Volatility decrease, WP

Publication Details

Pages:

26
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/119
Stock No:

WPIEA2013119
ISBN:

9781484354605
ISSN:

1018-5941

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