Hevia, Constantino2012-03-192012-03-192009-04-01https://hdl.handle.net/10986/4091Aggregate fluctuations in emerging countries are quantitatively larger and qualitatively different in key respects from those in developed countries. Using data from Mexico and Canada, this paper decomposes these differences in terms of shocks to aggregate efficiency and shocks that distort the decisions of households about how much to invest, consume, and work in a standard model of a small open economy. The decomposition exercise suggests that most of these differences are explained by fluctuations in aggregate efficiency, distortions in labor decisions over the business cycle, and, most importantly, fluctuations in country risk. Other distortions are quantitatively less important.CC BY 3.0 IGOABSOLUTE VALUEACCELERATORADJUSTMENT COSTADJUSTMENT COST PARAMETERADJUSTMENT COSTSAFFILIATED ORGANIZATIONSAGENCY COSTSAGGREGATE INVESTMENTALLOCATIONARIMABEHAVIOR OF INVESTMENTBEHAVIOR OF PRICESBONDBONDSBUSINESS CYCLEBUSINESS CYCLESCAPITAL ACCUMULATIONCAPITAL FLOWSCAPITAL FORMATIONCAPITAL GOODSCAPITAL RATIOCAPITAL STOCKCLOSED ECONOMYCOLLATERALCONSTANT RETURNS TO SCALECONSUMPTION EXPENDITURESCONSUMPTION GOODCONSUMPTION GOODSCOUNTRY RISKCOVARIANCE MATRIXCURRENT ACCOUNTDEBTDEFAULT RISKDEPRECIATIONDEPRECIATION RATEDEPRESSIONDEVELOPING COUNTRIESDISTORTIONDISTORTIONSECONOMIC ACTIVITYECONOMIC RESEARCHECONOMIC THEORYELASTICITYEMERGING ECONOMIESEMERGING MARKETEMERGING MARKET BUSINESSEQUILIBRIUMEXPECTED UTILITYEXTERNAL DEBTFINANCIAL CRISESFOREIGN DEBTFOREIGN INTEREST RATESFUNCTIONAL FORMSGDPGENERAL EQUILIBRIUMGENERAL EQUILIBRIUM ANALYSISGOVERNMENT EXPENDITURESGROSS DOMESTIC PRODUCTGROWTH RATEGROWTH RATESIMPORTSINCOMEINCOME TAXINDUSTRIAL COUNTRIESINTEREST RATEINTEREST RATESINTERNATIONAL ECONOMICSINVENTORIESINVESTMENT DECISIONSINVESTMENT EXPENDITURESINVESTMENT RISKLEVERAGEMACROECONOMIC POLICIESMACROECONOMICSMARGINAL PRODUCTMARGINAL UTILITYMAXIMUM LIKELIHOOD ESTIMATIONMONETARY ECONOMICSMONETARY POLICYNET EXPORTSOPEN ECONOMIESOPEN ECONOMYOPTIMIZATIONOUTPUTOUTPUT RATIOOUTPUT RATIOSPOLITICAL ECONOMYPOPULATION GROWTHPRIVATE CONSUMPTIONPRODUCTION FUNCTIONPRODUCTION FUNCTIONSPRODUCTIVITY GROWTHPUBLIC POLICYREAL INTEREST RATESRECESSIONRECESSIONSRELATIVE PRICERISK AVERSIONRISK PREMIUMSLACKSTANDARD DEVIATIONSTEADY STATESTICKY WAGESSTOCK OF CAPITALSURPLUSTAXTAX RATETOTAL FACTOR PRODUCTIVITYTRANSMISSION MECHANISMSTROUGHUNEMPLOYMENTUNEMPLOYMENT RATEUTILITY FUNCTIONVOLATILITYWEALTHWORKING CAPITALWORLD DEVELOPMENT INDICATORSWORLD INTEREST RATEWORLD INTEREST RATESWorld Bank10.1596/1813-9450-4897