World price shocks drive developing countries' business cycles, impacting output volatility.
The study looked at how changes in world prices affect business cycles in developing countries. By using a model of a small open economy, the researchers found that fluctuations in the prices of capital goods and intermediate inputs have a big impact on output variability, while changes in world interest rates don't affect business cycles much. Overall, world price shocks explain a significant portion of the ups and downs in the economy of developing countries.