Real Business Cycles in Emerging Countries?

Transcription

1 Real Business Cycles in Emerging Countries? Javier García-Cicco, Roberto Pancrazi and Martín Uribe Published in American Economic Review (2010) Presented by Onursal Bağırgan Real Business Cycles in Emerging Countries? / 23

2 Background Information Business cycles in emerging countries explained using neoclassical model with shocks to total factor productivity no distortions Related Literature Kydland and Zarazaga (2002): RBC can replicate lost decade of 1980 s Argentina. Aguiar and Gopinath (2007): RBC with permanent productivity shocks can explain business cycles in emerging countries. Drawback of existing studies: Usage of short sample Real Business Cycles in Emerging Countries? / 23

3 Introduction A theoretical model and econometric estimation of the parameters A small open economy RBC model Argentina and Mexico Period: Main finding: RBC model does a poor job at explaining several aspects of data Real Business Cycles in Emerging Countries? / 23

4 Business Cycles in Emerging Countries: Figure: Output Per Capita in Argentina and the United States: Real Business Cycles in Emerging Countries? / 23

5 Business Cycles in Emerging Countries: Figure: Business Cycles in Small Economies: Real Business Cycles in Emerging Countries? / 23

6 Business Cycles in Emerging Countries: Figure: The Autocorrelation Function of the Trade Balance-to-Output Ratio in Emerging Countries Real Business Cycles in Emerging Countries? / 23

7 The RBC Model max E 0 β t [C t θω 1 X t 1 ht ω ] 1 γ 1 t=0 1 γ s. to Y t = a t K α t (X t h t ) 1 α D t r t = D t Y t + C t + I t + φ 2 K t+1 = (1 δ)k t + I t ( ) lim E D t+j t j Π j s=0 (1 + r s) K 0, D 1 given 0 ( Kt+1 K t ) 2 g K t Real Business Cycles in Emerging Countries? / 23

8 The RBC Model Process of productivity shock a t : ln a t+1 = ρ a ln a t + ɛ a t+1; ɛ a t N(0, σ 2 a ) Productivity shock X t is nonstationary. g t X t X t 1 Process of g t : ln(g t+1 /g) = ρ g ln(g t /g) + ɛ g t+1 ; ɛg t N(0, σ 2 g ) Debt-elastic interest rate premium: ( ) r t = r + ψ e D t+1 /X t d 1 Real Business Cycles in Emerging Countries? / 23

9 Calibration: Argentina Real Business Cycles in Emerging Countries? / 23

10 Estimation: Argentina Real Business Cycles in Emerging Countries? / 23

11 Data-Model Comparison Trade Balance-to-Output Ratio Figure: The Predicted Autocorrelation Function of the Trade Balance-to-Output Ratio Real Business Cycles in Emerging Countries? / 23

12 Data-Model Comparison Second Moments Real Business Cycles in Emerging Countries? / 23

13 The Financial Frictions Model max E 0 ν t β t [C t θω 1 X t 1 ht ω ] 1 γ 1 t=0 1 γ s. to Y t = a t K α t (X t h t ) 1 α D t r t = D t Y t + C t + S t + I t + φ 2 K t+1 = (1 δ)k t + I t ( ) lim E D t+j t j Π j s=0 (1 + r s) K 0, D 1 given 0 ( Kt+1 K t ) 2 g K t Real Business Cycles in Emerging Countries? / 23

14 The Financial Frictions Model Additional Processes Process of preference shock ν t : ln ν t+1 = ρ ν ln ν t + ɛt+1; ν ɛt ν N(0, σν 2 ) Process of s t : ln(s t+1 /s) = ρ s ln(s t /s) + ɛt+1; s ɛt s N(0, σs 2 ) where s t S t X t 1 ( or it s a typo and s t S ) t S t 1 Real Business Cycles in Emerging Countries? / 23

15 The Financial Frictions Model Additional Processes Debt-elastic interest rate premium: ( ) r t = r + ψ e D t+1 /X t d 1 + ɛ µ t 1 1 where ln µ t+1 = ρ µ ln µ t + ɛ µ t+1 ; ɛµ t N(0, σ 2 µ) Real Business Cycles in Emerging Countries? / 23

16 Financial Frictions Model Estimation: Argentina Real Business Cycles in Emerging Countries? / 23

17 Financial Frictions Model Data-Model Comparison Real Business Cycles in Emerging Countries? / 23

18 Financial Frictions Model Variance Decomposition Real Business Cycles in Emerging Countries? / 23

19 Financial Frictions Model Trade Balance-to-Output Ratio Figure: The Predicted Autocorrelation Function of the Trade Balance-to-Output Ratio Real Business Cycles in Emerging Countries? / 23

20 Case of Mexico The country which is used to test RBC models in emerging countries: Aguiar and Gopinath (2007) Again, data period: GMM estimation instead of Bayesian Method Real Business Cycles in Emerging Countries? / 23

21 Mexico: Relevant Statistics Real Business Cycles in Emerging Countries? / 23

22 Mexico: Trade Balance-to-Output Ratio Figure: The Autocorrelation Function of the Trade Balance-to-Output Ratio Real Business Cycles in Emerging Countries? / 23

23 Conclusion RBC Model does a poor job at explaining Argentina and Mexico data Trade balance-to-output ratio Volatility of consumption growth compared to output growth Estimations show that permanent productivity shock is not dominant The model with financial frictions fits well to business cycle data for Argentina. Real Business Cycles in Emerging Countries? / 23