Output Volatility and Large Output Drops in Emerging Market and Developing Countries

May 1, 2007

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Format: Chicago

Dalia S Hakura. Output Volatility and Large Output Drops in Emerging Market and Developing Countries, (USA: International Monetary Fund, 2007) accessed December 23, 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 establishes that output volatility and the size of output drops have declined across all countries over the past three decades, but remain considerably higher in developing countries than in industrial countries. The paper employs a Bayesian latent dynamic factor model to decompose output growth into global, regional, and country-specific components. The favorable trends in output volatility and large output drops in developing countries are found to result from lower country-specific volatility and more benign country-specific events. Evidence from cross-section regressions over the 1970-2003 period suggest that discretionary fiscal spending volatility, and terms of trade volatility together with exchange rate flexibility are key determinants of volatility and large output drops.

Subject: Emerging and frontier financial markets, Exchange rate flexibility, Fiscal policy, Production growth, Terms of trade

Keywords: CFA country, Developing country region, Idiosyncratic factor, Output volatility, Terms of trade volatility, WP

Publication Details

Pages:

32
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2007/114
Stock No:

WPIEA2007114
ISBN:

9781451866780
ISSN:

1018-5941

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