Emerging Market Fluctuations : What Makes the Di erence?

Aggregate fluctuations in emerging countries are quantitatively larger and qualitatively different in key respects from those in developed countries. Using data from Mexico and Canada, this paper decomposes these differences in terms of shocks to a...

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Bibliographic Details
Main Author: Hevia, Constantino
Format: Policy Research Working Paper
Language:English
Published: 2012
Subjects:
GDP
TAX
Online Access:http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20090408124920
http://hdl.handle.net/10986/4091
Description
Summary:Aggregate fluctuations in emerging countries are quantitatively larger and qualitatively different in key respects from those in developed countries. Using data from Mexico and Canada, this paper decomposes these differences in terms of shocks to aggregate efficiency and shocks that distort the decisions of households about how much to invest, consume, and work in a standard model of a small open economy. The decomposition exercise suggests that most of these differences are explained by fluctuations in aggregate efficiency, distortions in labor decisions over the business cycle, and, most importantly, fluctuations in country risk. Other distortions are quantitatively less important.