Description

We pose a series of contemporary interactions between a set of previously documented common factors driving emerging market economies’ (EMEs) business cycles in a dynamic factor model with loading restrictions. We estimate a set of three common factors with a structural interpretation tightly linked to specific empirical counterparts—a financial factor, a commodity price factor, and a growth factor—with strong interactions among them. Our results point toward quantitatively relevant effects induced by shocks to the global factors that we identify. Even when accounting for the presence of financial cycles, we uncover a preponderant role for the fluctuations of commodity prices in the performance of EMEs.