cyclical properties of macroeconomic aggregates, Rand and Tarp (2002) show that the correlation of consumption (private and public) and investment with GDP in their sample of developing countries is significant, positive, and in line with the same correlations in developed economies. Public expenditures and output are significantly positively correlated in six developing countries in their sample, and in general, the authors do not find clear evidence of a countercyclical role of fiscal policy in their data. Lastly, they show that imports are strongly procyclical, especially in Latin America, while exports do not exhibit a robust relationship with output.

Calderón and Fuentes (2007) and Male (2010) challenged the findings in Rand and Tarp (2002) of the shorter duration of business cycles in developing countries. While the previous studies have relied predominantly on Hodrick-Prescott filter or Band-Pass filter to remove the trend component of the macroeconomic aggregates, Calderón and Fuentes (2007) used a methodology in Harding and Pagan (2002) to identify the business cycle component of the variables. Then, using a sample of twelve Latin American, eight East Asian and Pacific and three other emerging economies, they show that the duration of contractions is similar in developed and developing countries, but the duration of expansions is shorter in developing countries, on average. They also show that the amplitude of contractions and expansions is larger in developing economies than in developed countries. Moreover, they find that the output losses associated with contraction are significantly larger in developing countries.

More recently, a few systematic regularities common to developing countries began to emerge. Neumeyer and Perri (2005), using a sample of 5 emerging market economies and 5 developed countries show that emerging economies business cycles are more volatile, their real interest rates are countercyclical and lead the cycle, their consumption is more volatile than output, and their net exports are strongly countercyclical, relative to developed economies. They propose a model of small open economy with interest rate shocks and financial frictions to rationalize the findings in the data. In their framework, shocks to the interest rate are driven by two components: the international interest rate and the country risk-premium. They show that changes in country spreads are important drivers of business cycles in developing countries. Uribe and Yue (2006) extend this work by empirically estimating and adding endogenous country risk-premium into the model, thus allowing for interactions between world interest rate, country spreads, and emergingmarket fundamentals.

Aguiar and Gopinath (2007) revisit the evidence for 13 developed and 13 developing countries and document several striking differences between their business cycles: (i) the trade balance is strongly countercyclical for emerging markets as compared to developed economies; (ii) consumption is 40 percent more volatile than income for emerging markets, while the ratio is slightly below one for developed markets; and (iii) income growth and net exports are twice as volatile in emerging markets as in developed economies. They argue that a neoclassical growth model featuring shocks to trend growth can match these stylized facts.

Male (2010) using a larger sample of 32 developing countries documents that output, consumption and investment of developing countries are significantly more volatile than the corresponding variables in developed economies. For instance, output volatility in developing countries is double that in developed economies. She also finds that consumption is about 30% more volatile than 7