U.S. Monetary Policy's Impact on Latin America's Structure of Production (1960-2010)

Abstract

In this article, I study the effects of U.S. monetary policy on Latin America’s production structure prior to two recent economic crises. In particular, I study the effects of monetary policy on the real economy at the industrial level. I find that changes in the Federal Funds rate produce uneven effects on output trends across economic sectors. I find that industries that are more capital intensive and involved in relatively long-term projects are more sensitive to changes in the Federal Funds rate than industries that are less capital intensive and involved in relatively short-term projects. Therefore, periods of loose monetary policy result in a misallocation of resources that is costly to correct during a bust. This result finds a particular pattern of economic distortion during an unsustainable boom.

Keywords: international business cycles, monetary shocks, Latin America

JEL Classification: E32, F41