Description:
Using the dating algorithm by Harding
and Pagan (2002) on a quarterly database for 23 emerging
market economies (EMEs) and 12 developed countries over the
period 1980.Q1 - 2006.Q2, the authors proceed to
characterize and compare the business cycle features of
these two groups. They first find that recessions are deeper
and more frequent among EMEs (especially, among LAC
countries) and that expansions are more sizable and longer
(especially, among East Asian countries). After this
characterization, this paper explores the linkages between
the cost of recessions (as measured by the average annual
rate of output loss in the peak-to-trough phase of the
cycle) and several country-specific factors. The main
findings are: (a) adverse terms of trade shocks raises the
cost of recessions in countries with a more open trade
regime, deeper financial markets and, surprisingly, a more
diversified output structure. (b) U.S. interest rate shocks
seem to have a significant impact on the cost of recessions
in East Asian countries. (c) Recessions tend to be deeper if
they coincide with a sudden stop, but the effect tends to be
mitigated in countries with deeper domestic credit markets.
(d) Countries with stronger institutions tend to have less
costly recessions.