The paper by Mark Aguiar and Gita Gopinath examines the business cycles in emerging market economies, which are characterized by strong countercyclical current accounts, consumption volatility exceeding income volatility, and "sudden stops" in capital inflows. These features contrast with those of developed small open economies. The authors argue that a standard real business cycle model can explain these differences, attributing the volatility in emerging markets to frequent policy regime switches and substantial volatility in trend growth. They use a dynamic stochastic equilibrium model to identify the underlying productivity process, distinguishing between transitory and permanent shocks. Empirical evidence from Mexico and Canada supports their hypothesis, showing that shocks to trend growth are the primary source of fluctuations in emerging markets. The model also successfully predicts the magnitude and timing of "sudden stops" in the data. The study highlights the importance of trend shocks in explaining the distinct characteristics of emerging market business cycles.The paper by Mark Aguiar and Gita Gopinath examines the business cycles in emerging market economies, which are characterized by strong countercyclical current accounts, consumption volatility exceeding income volatility, and "sudden stops" in capital inflows. These features contrast with those of developed small open economies. The authors argue that a standard real business cycle model can explain these differences, attributing the volatility in emerging markets to frequent policy regime switches and substantial volatility in trend growth. They use a dynamic stochastic equilibrium model to identify the underlying productivity process, distinguishing between transitory and permanent shocks. Empirical evidence from Mexico and Canada supports their hypothesis, showing that shocks to trend growth are the primary source of fluctuations in emerging markets. The model also successfully predicts the magnitude and timing of "sudden stops" in the data. The study highlights the importance of trend shocks in explaining the distinct characteristics of emerging market business cycles.