Do institutions matter for economic fluctuations? Weak property rights in a business cycle model for Mexico

Angelopoulos, K., Economides, G. and Vassilatos, V. (2011) Do institutions matter for economic fluctuations? Weak property rights in a business cycle model for Mexico. Review of Economic Dynamics, 14(3), pp. 511-531. (doi:10.1016/j.red.2010.04.002)

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Abstract

In this paper we introduce weak property rights in the standard real business cycle (RBC) model in order to examine the role of institutions as a source of economic fluctuations in emerging markets. In particular, in Mexico, the movements in productivity in the data are associated with changes in institutions, so that we can explain productivity shocks to a large extent as shocks to the quality of institutions. We find that the model with shocks to the degree of protection of property rights can match the second moments in the data for Mexico very well. Moreover, the fit is better than that of the standard neoclassical model with full protection of property rights regarding the auto-correlations and cross-correlations in the data. Viewing productivity shocks as shocks to institutions is also consistent with the stylized fact of falling productivity and non-decreasing labor hours in Mexico over 1980–1994, which is a feature that the neoclassical model cannot match.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Angelopoulos, Dr Konstantinos
Authors: Angelopoulos, K., Economides, G., and Vassilatos, V.
Subjects:H Social Sciences > HB Economic Theory
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Review of Economic Dynamics
ISSN:1094-2025
ISSN (Online):1096-6099
Published Online:21 April 2010

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