Intra-Regional Spillovers in South America: Is Brazil Systemic after All?

23 Pages Posted: 28 Feb 2012

See all articles by Marialuz Moreno Badia

Marialuz Moreno Badia

International Monetary Fund (IMF)

Luc Eyraud

International Monetary Fund (IMF)

Juliane Sarnes

affiliation not provided to SSRN

Julio Escolano

International Monetary Fund (IMF) - Fiscal Affairs Department

Anita Tuladhar

International Monetary Fund (IMF) - European Department

Date Written: June 2012

Abstract

Shocks stemming from Brazil - the large neighbor in South America - have historically been a source of concern for policy-makers in other countries of the region. This paper studies the importance of Brazil’s influence on its neighboring economies, documenting trade linkages over the last two decades and quantifying spillover effects in a Vector Auto Regression setting. While trade linkages with Brazil are significant for the Southern Cone countries (Argentina, Bolivia, Chile, Paraguay, and Uruguay), they are very weak for others. Consistent with this evidence, econometric results show that, while the Southern Cone economies (especially Mercosur’s members) are vulnerable to output shocks from Brazil, the rest of South America is not. Spillovers can take two different forms: the transmission of Brazil-specific shocks and the amplification of global shocks—through their impact on Brazil’s output. Finally, we also find suggestive evidence that depreciations of Brazil’s currency may not have significant impact on output of its key trading partners.

Keywords: Spillovers, Latin America, Regional shocks, exchange rate, global shocks, commodity prices, real exchange rate, export performance, domestic demand, neighboring countries, exchange rate depreciation, exchange rates, trading partners, real exchange rate depreciation, idiosyncratic shocks, real effective exchange rate, bilateral real exchange rate, effective exchange rate, regional trade, exchange rate regime, bilateral exchange rate, trade integration, increased trade, trade flows, trading partner, regional integration, trade in services, real effective exchange rates, trade agreement, real exchange rates, limited exchange rate flexibility, effective exchange rates, trade channels, global int

JEL Classification: C32, E42, F41

Suggested Citation

Moreno-Badia, Marialuz and Eyraud, Luc and Sarnes, Juliane and Escolano, Julio and Tuladhar, Anita, Intra-Regional Spillovers in South America: Is Brazil Systemic after All? (June 2012). Available at SSRN: https://ssrn.com/abstract=2012230 or http://dx.doi.org/10.2139/ssrn.2012230

Marialuz Moreno-Badia

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Luc Eyraud

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Juliane Sarnes

affiliation not provided to SSRN

No Address Available

Julio Escolano

International Monetary Fund (IMF) - Fiscal Affairs Department

700 19th Street, NW
Washington, DC 20431
United States

Anita Tuladhar

International Monetary Fund (IMF) - European Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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