Business Cycles in Emerging Economies:The Role of Interest Rates

By P. Neumeyer, Fabrizio Perri. 2005

427 citations recorded by the source corpus.

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%.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/efc417126f3eb673344a5ed9c42e437551242a2f

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Citations in the corpus

Fiscal Rules and the Sovereign Default Premium (2022, neutral): “The inverse of the labor elasticity (ω) and the weight of labor hours on the utility (ψ) are taken from Neumeyer and Perri (2005), who study business cycles in small open economies.”
Sharing a Ride on the Commodities Roller Coaster: Common Factors in Business Cycles of Emerging Economies (2015, neutral): “These preferences have been used extensively in previous works on business cycles of emerging economies (see, among others, Neumeyer and Perri, 2005; Uribe and Yue, 2006).”
Sovereign Debt Crises and Credit to the Private Sector (2006, neutral): “When the sovereign starts debt renegotiations, whether or not it formally announces its inability to service the debt, investors might perceive the country risk to be higher and raise the risk premium For the empirical work on the cost of capital in emerging markets, see Perri and Neumeyer (2005) an”
Real Business Cycles in Emerging Countries (2010, positive): “Others have documented this fact for Argentina and other emerging countries using post-1980 data (Pablo A. Neumeyer and Fabrizio Perri 2005; Aguiar and Gopinath 2007; and Uribe 2006).”
An Anatomy of Credit Booms: Evidence from Macro Aggregates and Micro Data (2008, neutral): “…business cycle studies: First, the larger amplitude of the fluctuations displayed by emerging economies is in line with well-established evidence showing that business cycles are larger in developing countries (see Mendoza (1995), Kose, Prasad and Terrones (2003), Neumeyer and Perri (2005)).”
Household Leverage and the Recession (2011, positive): “Following Schmitt-Grohe and Uribe (2003) and Neumeyer and Perri (2005), we eliminate this non-stationarity by assuming that patient agents on each island face a quadratic cost of deviating from the aggregate asset market position.”
International Reserves and Rollover Risk (2013, positive): “Mexico is a common reference for studies on emerging economies because its business cycle displays the same properties that are observed in other emerging economies (Aguiar and Gopinath 2007; Neumeyer and Perri 2005).”
Self-Fulfilling Currency Crises: The Role of Interest Rates (2006, neutral): “…implying that domestic firms are less willing or able to borrow at higher interest rates; this view is put forth, for example, by the literature on " sudden stops " (cf. Calvo, 1998), or in many business cycle models of emerging market economies (see Pablo Andrés Neumeyer and Fabrizio Perri, 2005).”
Cross-Border Banking in Europe: Implications for Financial Stability and Macroeconomic Policies (2011, neutral): “The repercussion of cross-border banking for the synchronisation of real economy variables, such as GDP, investment and consumption, over time can be shown theoretically using the international version of the real business cycle model, which typically works with two countries (see Baxter and Crucini”
International Risk Cycles (2011, neutral): “For this reason, our model echoes the findings of Neumeyer and Perri (2005).”
The Macroeconomics of Central Bank Issued Digital Currencies (2016, neutral): “The main example is the open economy literature with incomplete asset markets (Schmitt-Grohé and Uribe (2003), Neumeyer and Perri (2005)).”