Financial market participation and the developing country business cycle

• 成果类型: Article
• 署名作者: Ozbilgin, H. Murat
• 署名单位: Prime Ministry Turkey; Central Bank of the Republic of Turkey
• 刊物名称: JOURNAL OF DEVELOPMENT ECONOMICS
• ISSN/ISSBN: 0304-3878
• DOI: 10.1016/j.jdeveco.2009.03.005
• 发表日期: 2010
• 页码: 125-137
• 关键词: small open economy; business cycles; Financial integration; financial development; Developing countries

摘要

I explore the implications of limited participation in financial markets on a standard small open economy business cycle model. Despite its parsimony, the limited participation model developed in this paper improves over the standard model in terms of explaining two important features of business cycle facts of developing countries: high volatility of consumption, and high negative correlation between the trade balance and output. Limited participation model is then used to inspect the effects of financial development and integration on macroeconomic volatility. Under a standard calibration, limited participation model leads to the conclusion that financial development and integration are associated with higher investment and output volatility. Effect of more participation on consumption volatility is dependent on the specification of the risk premium function. (C) 2009 Elsevier B.V. All rights reserved.