Macroeconomic Fluctuations in the Caribbean: The Role of Climatic and External Shocks

28 Pages Posted: 4 Aug 2009

See all articles by Sebastiàn Sosa

Sebastiàn Sosa

International Monetary Fund (IMF) - Western Hemisphere Department

Paul Anthony Cashin

International Monetary Fund (IMF)

Date Written: July 2009

Abstract

This paper develops country-specific VAR models with block exogeneity restrictions to analyze how exogenous factors affect business cycles in the Eastern Caribbean. It finds that external shocks play a key role, explaining more than half of macroeconomic fluctuations in the region. Domestic business cycles are especially vulnerable to changes in climatic conditions, with a natural disaster leading to an immediate and significant fall in output-but the effects do not appear to be persistent. Oil price and external demand shocks also contribute significantly to domestic macroeconomic fluctuations. An increase in oil prices (external demand) is contractionary (expansionary), and the effects dissipate up to three years after the shock.

Keywords: Business cycles, Caribbean, Climatic changes, Cross country analysis, Economic models, External shocks, Regional shocks

Suggested Citation

Sosa, Sebastian and Cashin, Paul Anthony, Macroeconomic Fluctuations in the Caribbean: The Role of Climatic and External Shocks (July 2009). IMF Working Paper No. 09/159, Available at SSRN: https://ssrn.com/abstract=1442262

Sebastian Sosa

International Monetary Fund (IMF) - Western Hemisphere Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Paul Anthony Cashin

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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