Booms and Busts in Latin America: The Role of External Factors

31 Pages Posted: 25 Apr 2011

See all articles by Alejandro Izquierdo

Alejandro Izquierdo

Inter-American Development Bank (IDB) - Research Department

Randall Romero-Aguilar

Inter-American Development Bank (IDB) - Research Department

Ernesto Talvi

Centro de Estudios de la Realidad Economica y Social (CERES)

Date Written: February 2008

Abstract

This paper analyzes the relevance of external factors in average quarterly GDP growth for 1990-2006 in the seven largest Latin American countries (LAC7). Modeling the relationship between LAC7 GDP and several external factors, it is found that those factors account for a significant share of variance in LAC7 GDP growth, and that external shocks produce significant responses. Likewise, a significant share of recent LAC7 growth performance can be explained by an external factor “tailwind. ” Also evaluated is the impact of deterioration in external financial conditions. Finally, the relevance of these findings for policy evaluation is emphasized. Growth performance, the strength or weakness of macroeconomic fundamentals and the impact of domestic macro and micro policies on growth can only be properly appraised by first filtering out the effects of external factors.

Suggested Citation

Izquierdo, Alejandro and Romero-Aguilar, Randall and Talvi, Ernesto, Booms and Busts in Latin America: The Role of External Factors (February 2008). IDB Working Paper No. 532. Available at SSRN: https://ssrn.com/abstract=1820920 or http://dx.doi.org/10.2139/ssrn.1820920

Alejandro Izquierdo (Contact Author)

Inter-American Development Bank (IDB) - Research Department ( email )

1300 New York Ave., NW
Washington, DC 20577
United States

Randall Romero-Aguilar

Inter-American Development Bank (IDB) - Research Department ( email )

1300 New York Ave., NW
Washington, DC 20577
United States

Ernesto Talvi

Centro de Estudios de la Realidad Economica y Social (CERES) ( email )

Antonio Costa 3476
11300 Montevideo
Uruguay
(5982)628-7703 / 628 76 44 (Phone)
(5982)622-0526 (Fax)

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