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 struct ural shocks is based primarily on long-run restrictions that are in the spi rit of Blanchard and Quah (1989). The evidence from Brazil and Korea sugges ts that domestic shocks are the main source of CDP fluctuations, while exte rnal 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 macroe conomic instability casts some doubts on the appropriateness of some of the identifying assumptions.