Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/320330 
Year of Publication: 
2025
Citation: 
[Journal:] Quantitative Economics [ISSN:] 1759-7331 [Volume:] 16 [Issue:] 1 [Year:] 2025 [Pages:] 1-47
Publisher: 
The Econometric Society, New Haven, CT
Abstract: 
We develop a new model of cycles and crises in emerging markets, featuring an occasionally binding borrowing constraint and stochastic volatility, and estimate it with quarterly data for Mexico since 1981. We propose an endogenous regime-switching formulation of the occasionally binding borrowing constraint, develop a general perturbation method to solve the model, and estimate it using Bayesian methods. We find that the model fits the Mexican data well without systematically relying on large shocks, matching the typical stylized facts of emerging market business cycles and Mexico's history of sudden stops in capital flows. We also find that interest rate shocks play a smaller role in driving both cycles and crises than previously found in the literature.
Subjects: 
Business cycles
Bayesian estimation
endogenous regime-switching,financial crises
Mexico
occasionally binding constraints
sudden stops
JEL: 
C11
E3
F41
G01
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc Logo
Document Type: 
Article

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