Trend shocks and economic development

Naoussi, Claude Francis; Tripier, Fabien

doi:10.1016/j.jdeveco.2013.01.004

Cited by 34 publications

(20 citation statements)

References 32 publications

(62 reference statements)

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“…Similarly, Naoussi and Tripier (2013) estimate a real business cycle model with transitory and trend shocks to productivity for eighty-two countries, including developed, emerging, and Sub-Saharan African (SSA) countries. They find that magnitudes of trend shocks are positively correlated with relative consumption volatilities.…”

Section: Positive Correlation Between the Size Of Trend Growth Shock mentioning

confidence: 99%

Financial Inclusion, Productivity Shocks, and Consumption Volatility in Emerging Economies

Bhattacharya¹,

Patnaik²

2015

Policy Research Working Papers

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How does access to finance impact consumption volatility? Theory and evidence from advanced economies suggests that greater household access to finance smooths consumption. Evidence from emerging markets, where consumption is usually more volatile than income, indicates that financial reform further increases the volatility of consumption relative to output. This puzzle is addressed in the framework of an emerging economy model in which households face shocks to trend growth rate, and a fraction of them are financially constrained, with no access to financial services. Unconstrained households can respond to shocks to trend growth by raising current consumption more than the rise in current income. Financial reform increases the share of such households, leading to greater relative consumption volatility. Calibration of the model for pre-and post-financial reform in India provides support for the model's key predictions. JEL Codes: C50, E10, E21, E32 I N T R O D U C T I O N Emerging economies have been seen to witness an increase in consumption volatility relative to output volatility after financial development. This behaviour appears puzzling since traditional models and evidence from advanced economies suggests that consumption should become smoother after financial constraints are reduced. This puzzle can be explained in a model featuring financial constraints and shocks to trend growth of productivity. The model predicts that

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Section: Positive Correlation Between the Size Of Trend Growth Shock mentioning

confidence: 99%

Financial Inclusion, Productivity Shocks, and Consumption Volatility in Emerging Economies

Bhattacharya¹,

Patnaik²

2015

Policy Research Working Papers

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“…Our finding about the importance of trend shocks in these countries suggests that trend shocks are neither dominant nor negligible as earlier works with only a few countries have found. Furthermore, we also highlight the role of financial frictions in developing countries, unlike Naoussi and Tripier (), who use shorter data for 82 countries but restrict their attention to a frictionless model with trend shocks. This finding resonates with recent work by Akinci () and Fernandez and Gulan (), who quantify the role of financial frictions in a microfounded financial friction model using recent data.…”

Section: Introductionmentioning

confidence: 96%

Business Cycles in Small Open Economies: Evidence From Panel Data Between 1900 and 2013

Miyamoto

Nguyen

2017

Int Economic Review

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. ii Terms of use: Documents in EconStor may AbstractUsing a novel data set for 17 countries dating from 1900 to 2013, we characterize business cycles in both small developed and developing countries in a model with financial frictions and a common shock structure. We estimate the model jointly for these 17 countries using Bayesian methods. We find that financial frictions are an important feature for not only developing countries but also small developed countries. Furthermore, business cycles in both groups of countries are marked with trend productivity shocks. Non-Technical Summary Motivation and QuestionBusiness cycles in emerging economies are marked with highly volatile consumption and countercyclical trade balance. There are two views in the literature to explain these features: Aguiar and Gopinath (2007) argue that business cycles in emerging economies can be well explained by a frictionless real business cycle model with shocks to trend productivity, reflecting frequent regime switches in economic policies and market failures in emerging economies. In contrast, Garcia-Cicco et al. (2010) argue that a model with financial frictions can better capture the dynamics of emerging economies and in that case trend shocks are not necessary. Given these contrasting views, we characterize the important features of business cycles in developing countries and compare with those in advanced countries using long historical data for 17 small open economies. MethodologyWe build a small open economy real business cycle model with reduced-form financial frictions and trend productivity shocks augmented with common shocks. We estimate the model using Bayesian methods jointly for 17 countries between 1900 and 2013. Key ContributionsWe make three contributions to the literature. First, we collect a new data set of macroeconomic variables covering 17 small open economies, for both advanced and developing countries between 1900 and 2013. This is motivated by the fact that most of the previous studies rely on only a few countries' data. Furthermore, while it is important to use long data to identify trend shocks, except for Garcia-Cicco et al. (2010), previous papers use relatively short data due to the limitation of public data, especially for emerging economies. Second, we estimate a model that nests two important features in the literature-trend productivity shocks and financial frictions-to quantify the importance of these two features. Third, we augment the model wi...

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“…Our finding of more severe exposure to growth shocks in emerging markets relates our paper to Aguiar and Gopinath (2007), who demonstrate the important role of TFP growth rate volatility in driving observed aggregate dynamics in these countries. Relatedly, Naoussi and Tripier (2013) find that growth shocks play an even more important role in accounting for the behavior of macroeconomic variables in developing and Sub-Saharan African countries.…”

Section: Introductionmentioning

confidence: 97%

The Risky Capital of Emerging Markets

David

Henriksen

Simonovska

2014

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We use macroeconomic data to build a panel of international capital returns over a long horizon across both developed and developing countries. We document two facts: poor and emerging markets exhibit (1) high average returns to capital and (2) high betas on US returns. We quantitatively explore whether consumption-based risk faced by a US investor can reconcile these patterns. Long-run risks lead to return disparities at least 55% as large as those in the data. Fact (2), although not a sufficient statistic, is informative about the extent of long-run risk in foreign capital, and so about fact (1).

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Trend shocks and economic development

Cited by 34 publications

References 32 publications

Financial Inclusion, Productivity Shocks, and Consumption Volatility in Emerging Economies

Financial Inclusion, Productivity Shocks, and Consumption Volatility in Emerging Economies

Business Cycles in Small Open Economies: Evidence From Panel Data Between 1900 and 2013

The Risky Capital of Emerging Markets

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