TY  - JOUR
AU  - Neumeyer,Pablo A.
AU  - Perri,Fabrizio
TI  - Business Cycles in Emerging Economies: The Role of Interest Rates
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10387
PY  - 2004
Y2  - March 2004
UR  - http://www.nber.org/papers/w10387
L1  - http://www.nber.org/papers/w10387.pdf
N1  - Author contact info:
Fabrizio Perri
University of Minnesota
Department of Economics
4-177 Hanson Hall
Minneapolis, MN 55455
Tel: 612/625-7504
Fax: 612/624-0209
E-Mail: fperri@umn.edu
AB  - We find that in a sample of emerging economies business cycles are more volatile than in developed ones, real interest rates are countercyclical and lead the cycle, consumption is more volatile than output and net exports are strongly countercyclical. We present a model of a small open economy, where the real interest rate is decomposed in an international rate and a country risk component. Country risk is affected by fundamental shocks but, through the presence of working capital, also amplifies the effects of those shocks. The model generates business cycles consistent with Argentine data. Eliminating country risk lowers Argentine output volatility by 27% while stabilizing international rates lowers it by less than 3%.
ER  -