Quantitative Economics

Journal Of The Econometric Society

Edited by: Stéphane Bonhomme • Print ISSN: 1759-7323 • Online ISSN: 1759-7331

Quantitative Economics: Jan, 2025, Volume 16, Issue 1

Estimating Macroeconomic Models of Financial Crises: An Endogenous Regime-Switching Approach

https://doi.org/10.3982/QE2038
p. 1-47

Gianluca Benigno|Andrew Foerster|Christopher Otrok|Alessandro Rebucci

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.


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Supplemental Material

Supplement to "Estimating Macroeconomic Models of Financial Crises: An Endogenous Regime-Switching Approach"

Gianluca Benigno, Andrew Foerster, Christopher Otrok, and Alessandro Rebucci

This supplementary appendix provides technical details and additional results.

Supplement to "Estimating Macroeconomic Models of Financial Crises: An Endogenous Regime-Switching Approach"

Gianluca Benigno, Andrew Foerster, Christopher Otrok, and Alessandro Rebucci

The replication package for this paper is available at https://doi.org/10.5281/zenodo.14026657. The Journal checked the data and codes included in the package for their ability to reproduce the results in the paper and approved online appendices.

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