The Sources of Macroeconomic Fluctuations in Developing Countries : Brazil and Korea

This paper studies the sources of macroeconomic fluctuations in small open economies using a structural VAR approach. The identification of the structural shocks is based primarily on long-run restrictions that are in the spirit of Blanchard and Quah (1989). The evidence from Brazil and Korea suggests that domestic shocks are the main source of GDP fluctuations, while external shocks explain a small fraction of movements in output. In Korea, the most important domestic shocks are those associated with supply factors. In Brazil, domestic demand factors are important but the high level of macroeconomic instability casts some doubts on the appropriateness of some of the identifying assumptions