The Contribution of Domestic, Regional and International Factors to Latin America's Business Cycle
CAMA Working Paper No. 33/2008
31 Pages Posted: 9 Nov 2008 Last revised: 19 Dec 2008
Date Written: October 2008
This paper quantifies the relative contribution of domestic, regional and international factors to the fluctuation of domestic output in six key Latin American (LA) countries: Argentina, Bolivia, Brazil, Chile, Mexico and Peru. Using quarterly data over the period 1980:1-2003:4, a multi-variate, multicountry time series model was estimated to study the economic interdependence among LA countries and, in addition, between each of them and the three world largest industrial economies: the US, the Euro Area and Japan. Falsifying a common suspicion, it is shown that the proportion of LA countries' domestic output variability explained by industrial countries' factors is modest. By contrast, domestic and regional factors account for the main share of output variability at all simulation horizons. The implications for the choice of the exchange rate regime are also discussed.
Keywords: International business cycle, Latin America, exchange rate regimes, Global VAR methodology, VECM
JEL Classification: C32, E32, F31, F41
Suggested Citation: Suggested Citation