Output Fluctuations in Latin America: What Explains the Recent Slowdown?

62 Pages Posted: 20 Apr 2016

See all articles by Santiago Herrera

Santiago Herrera

World Bank

Guillermo E. Perry

World Bank - Latin America and Caribbean Region

Neile Quintero

World Bank

Date Written: May 2000

Abstract

For the period 1992-98, domestic factors explain most output variability in Latin America. However, external factors account for about 60 percent of the 1998-99 slowdown - perhaps in part because external variables were more volatile during this period, but mainly because domestic variables - real interest rates and real exchange rates - were more stable in these two years.

Herrera, Perry, and Quintero explain Latin America's growth slowdown in 1998-99. To do so, they use two complementary methodologies. The first aims at determining how much of the slowdown can be explained by specific external factors: the terms of trade, international interest rates, spreads on external debt, capital flows, and climatological factors (El Nino). Using quarterly GDP data for the eight largest countries in the region, the authors estimate a dynamic panel showing that 50--60 percent of the slowdown was due to these external factors. The second approach allows for effects on output by some endogenous variables, such as domestic real interest rates and real exchange rates. Using monthly industrial production data, the authors estimate country-specific generalized vector autoregressions (GVAR) for the largest countries.

They find that during the sample period (1992-98) output volatility is mostly associated with shocks to domestic factors, but the slowdown in the subperiod 1998-99 is explained more than 60 percent by shocks to the external factors.

This paper - a product of the Economic Policy Sector Unit and the Poverty Reduction and Economic Management Sector Unit, Latin America and Caribbean Regional Office - is part of a larger effort to understand output fluctuations and growth in the region. The authors may be contacted at gperry@worldbank.org or nquintero@worldbank.org.

Suggested Citation

Herrera, Santiago and Perry, Guillermo E. and Quintero, Neile, Output Fluctuations in Latin America: What Explains the Recent Slowdown? (May 2000). World Bank Policy Research Working Paper No. 2333. Available at SSRN: https://ssrn.com/abstract=630705

Santiago Herrera (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Guillermo E. Perry

World Bank - Latin America and Caribbean Region ( email )

1818 H Street NW
Washington, DC 20433
United States

Neile Quintero

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

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