Emerging Economy Business Cycles: Financial Integration and Terms of Trade Shocks

Author/Editor:

Rudrani Bhattacharya ; Ila Patnaik ; Madhavi Pundit

Publication Date:

May 22, 2013

Electronic Access:

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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 analyses the extent to which financial integration impacts the manner in which terms of trade affect business cycles in emerging economies. Using a s mall open economy model, we show that as capital account openness increases in an economy that faces trade shocks, business cycle volatility reduces. For an economy with limited financial openness, and a relatively open trade account, a model with exogenous terms of trade shocks is able to replicate the features of the business cycle.

Series:

Working Paper No. 2013/119

Subject:

English

Publication Date:

May 22, 2013

ISBN/ISSN:

9781484354605/1018-5941

Stock No:

WPIEA2013119

Pages:

26

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