Empirical Evaluation of DSGE Models for Emerging Countries

2009
224pages

Javier Garc´ıa-Cicco
Department of Economics
Duke University

Dissertation submitted in partial fulfillment of the requirements for the degree of
Doctor of Philosophy in the Department of Economics
in the Graduate School of Duke University
2009

Contents
Abstract iv
List of Tables ix
List of Figures xi
Acknowledgements xiii
Introduction 1


1 Real Business Cycles in Emerging Countries? 5
1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.2 Business Cycles in Emerging Countries: 1900-2005 . . . . . . . . . . . 8
1.3 The Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
1.4 Estimation: Argentina 1900-2005 . . . . . . . . . . . . . . . . . . . . 17
1.5 Model Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
1.6 Robustness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
1.7 Mexico 1900-2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
1.8 Financial Frictions, Country-Spread Shocks, and Domestic Demand
Shocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
1.9 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41


2 What Drives the Roller Coaster?
Sources of Fluctuations in Emerging Countries 44
2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
2.2 Literature Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
2.3 A First Look at the Data . . . . . . . . . . . . . . . . . . . . . . . . . 55
2.4 The Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
2.5 Empirical Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
2.6 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
2.7 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
2.8 Tables and Figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84



3 Estimating Models for Monetary Policy Analysis in Emerging Countries
100
3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
3.2 The Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
3.3 Empirical Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
3.4 The Fit of the Baseline Model . . . . . . . . . . . . . . . . . . . . . . 129
3.5 On the Importance of Emerging-Countries Frictions . . . . . . . . . . 134
3.6 Conclusions and Future Research . . . . . . . . . . . . . . . . . . . . 142
3.7 Tables and Figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145



A Appendix to Chapter 1 160
A.1 Data Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160
A.2 Optimality Conditions of the Household’s Problem . . . . . . . . . . 162
A.3 Equilibrium Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . 162
A.4 GMM Estimation Procedure . . . . . . . . . . . . . . . . . . . . . . . 164
B Appendix to Chapter 2 166
B.1 Data Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
B.2 Technical Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
C Appendix to Chapter 3 179
C.1 Data Sources and Definitions . . . . . . . . . . . . . . . . . . . . . . 179
vii
C.2 Forming Priors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181
C.3 Comparing Models Using a Loss-Function . . . . . . . . . . . . . . . 185
C.4 Technical Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186
Bibliography 203
Biography 211
viii