- January 2016
Digital Object Identifier (DOI)
International Standard Serial Number (ISSN)
Electronic International Standard Serial Number (EISSN)
- This paper reviews the baseline framework for the analysis of emerging economies. Using Argentinean data, I estimate a small open economy model with stochastic trend, working capital constraint and augmented with time-varying parameters. I find that "structural" technological and financial parameters of one-sector model are time-varying during 1936-2006. Time-varying parameters correlate with the real exchange rate, suggesting potential misspecification of the one-sector model. Therefore, I propose a two-sector model that endogenously accounts for the real exchange rate. In this model, stationary productivity shocks and the country premium together explain a large share of the variability observed in the data. (C) 2015 Elsevier B.V. All rights reserved.
- emerging economies; real business cycle; parameter drift; real exchange rate; business cycles; large devaluations; rate fluctuations; models; policy