Accounting for Mexican business cycles

Research output: Contribution to journalArticlepeer-review

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.
Original languageEnglish
Pages (from-to)546-568
JournalMacroeconomic Dynamics
Volume28
Issue number3
DOIs
Publication statusPublished - Apr 2024

Keywords

  • intermediate goods
  • Business Cycle Accounting
  • Great recession

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