Aguilar and Gopinath (2007) analyze emerging market business cycles, highlighting their distinct characteristics compared to developed economies. Emerging markets exhibit countercyclical current accounts, higher consumption volatility relative to income, and "sudden stops" in capital inflows. The authors argue that these features are consistent with a standard business cycle model, but with a key difference: emerging markets experience significant volatility in trend growth, while developed markets have stable trends. Using consumption and net export data, they identify the persistence of productivity shocks, finding that trend shocks, not transitory fluctuations, drive business cycle variations in emerging markets. The study shows that a dynamic stochastic equilibrium model can accurately capture these features, with Mexico and Canada serving as benchmarks for emerging and developed markets, respectively. The authors find that productivity shocks in emerging markets are more persistent, leading to larger consumption responses and trade deficits. They also demonstrate that the model can replicate observed "sudden stops," such as Mexico's 1994–95 crisis. The study emphasizes the importance of distinguishing between trend and transitory shocks, using both direct and structural estimation methods. The results show that emerging markets have a more volatile stochastic trend, which explains their business cycle characteristics. The analysis underscores the role of productivity shocks in shaping macroeconomic outcomes, with implications for policy and economic modeling.Aguilar and Gopinath (2007) analyze emerging market business cycles, highlighting their distinct characteristics compared to developed economies. Emerging markets exhibit countercyclical current accounts, higher consumption volatility relative to income, and "sudden stops" in capital inflows. The authors argue that these features are consistent with a standard business cycle model, but with a key difference: emerging markets experience significant volatility in trend growth, while developed markets have stable trends. Using consumption and net export data, they identify the persistence of productivity shocks, finding that trend shocks, not transitory fluctuations, drive business cycle variations in emerging markets. The study shows that a dynamic stochastic equilibrium model can accurately capture these features, with Mexico and Canada serving as benchmarks for emerging and developed markets, respectively. The authors find that productivity shocks in emerging markets are more persistent, leading to larger consumption responses and trade deficits. They also demonstrate that the model can replicate observed "sudden stops," such as Mexico's 1994–95 crisis. The study emphasizes the importance of distinguishing between trend and transitory shocks, using both direct and structural estimation methods. The results show that emerging markets have a more volatile stochastic trend, which explains their business cycle characteristics. The analysis underscores the role of productivity shocks in shaping macroeconomic outcomes, with implications for policy and economic modeling.