Please use this identifier to cite or link to this item:
Altug, Sumru
Kabaca, Serdar
Poyraz, Meltem
Year of Publication: 
Series/Report no.: 
Koç University-TÜSİAD Economic Research Forum Working Paper Series 1136
This paper examines the role of the extensive and intensive margins of work in the context of business cycles in emerging markets with a financial friction. The earlier literature analyzed the role of search frictions with only an extensive margin of work and showed that such a framework can address the distinguishable business-cycle characteristics of emerging markets such as highly volatile consumption, countercyclical net exports, highly volatile wages and pro-cyclical wages. One of our contributions is to show that in the presence of an endogenous hours choice, search frictions fail to predict not only these characteristics but also the positive co-movement of hours worked per worker and employment with output. This occurs due to the strong income effect on hours worked. On the other hand, introducing a financial friction, namely working capital, significantly increases the performance of the model and suggests frictions in both labor markets and financial markets are necessary for explaining emerging market business cycles.
search frictions
emerging markets
business cycles
working capital
Document Type: 
Working Paper

Files in This Item:

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.