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Accounting for Mexican business cycles

Published online by Cambridge University Press:  27 April 2023

Pedro Brinca  and
João Ricardo Costa Filho Open the ORCID record for João Ricardo Costa Filho [Opens in a new window]
Pedro Brinca
Affiliation:
NOVA School of Business & Economics, Nova SBE, R. da Holanda 1, Carcavelos, Lisboa, 2775-405, Portugal
João Ricardo Costa Filho*
Affiliation:
NOVA School of Business & Economics, Nova SBE, R. da Holanda 1, 2775-405, Carcavelos, Lisboa, Portugal
*
Corresponding author: João Ricardo Costa Filho; Email: joao.filho@novasbe.pt
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Abstract

The Mexican economy experienced two large crises: in 1995 and in 2008. The dynamics and origins of the episodes are very different; nevertheless, is there a common underlying mechanism? First, by applying the Business Cycle Accounting method, we find that the efficiency wedge is the main driver of output during both episodes. We present an equivalence between the neoclassical growth model with distortions and a small open economy with imported intermediate goods inputs, in which relative price changes manifest themselves as changes on the efficiency wedge. This result proposes a solution for the theoretical puzzle regarding the relationship between terms of trade shocks and productivity. Finally, the model is able to reproduce both the intensities and velocities of the crises in Mexico.

Keywords

Great Recessionintermediate goodsbusiness cycle accounting
Type
Articles
Information
Macroeconomic Dynamics , Volume 28 , Issue 3 , April 2024 , pp. 546 - 568
Copyright
© The Author(s), 2023. Published by Cambridge University Press

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