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The Effect of External Conditions on Growth in Latin America

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Author Info
Pär Österholm
Jeromin Zettelmeyer

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Abstract

This paper investigates the sensitivity of Latin American GDP growth to external developments using a Bayesian VAR model with informative steady-state priors. The model is estimated on quarterly data from 1994 to 2006 on key external and Latin American variables. It finds that 50 to 60 percent of the variation in Latin American GDP growth is accounted for by external shocks. Conditional forecasts for a variety of external scenarios suggest that Latin American growth is robust to moderate declines in commodity prices and U.S. or world growth, but sensitive to more extreme shocks, particularly a combined external slowdown and tightening of world financial conditions.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/176.

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Length: 36 pages
Date of creation: 23 Jul 2007
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Handle: RePEc:imf:imfwpa:07/176

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Keywords: Working Paper ; Latin America ; Economic growth ; Business cycles ; Economic growth ; Commodity prices ;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
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  2. Österholm, Pär, 2006. "Incorporating Judgement in Fan Charts," Working Paper Series 2006:30, Uppsala University, Department of Economics. [Downloadable!]
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  3. Norman Loayza & Pablo Fajnzylber & César Calderón, 2004. "Economic Growth in Latin America and The Caribbean: Stylized Facts, Explanations, and Forecasts," Working Papers Central Bank of Chile 265, Central Bank of Chile. [Downloadable!]
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  6. Stark, Tom & Croushore, Dean, 2002. "Forecasting with a real-time data set for macroeconomists," Journal of Macroeconomics, Elsevier, vol. 24(4), pages 507-531, December. [Downloadable!] (restricted)
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  7. Eric M. Leeper & Tao Zha, 2003. "Modest policy interventions," Working Paper 2003-24, Federal Reserve Bank of Atlanta. [Downloadable!]
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  8. McNees, Stephen K., 1990. "The role of judgment in macroeconomic forecasting accuracy," International Journal of Forecasting, Elsevier, vol. 6(3), pages 287-299, October. [Downloadable!] (restricted)
  9. Kose, M. Ayhan & Rebucci, Alessandro, 2005. "How might CAFTA change macroeconomic fluctuations in Central America?: Lessons from NAFTA," Journal of Asian Economics, Elsevier, vol. 16(1), pages 77-104, February. [Downloadable!] (restricted)
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  11. Litterman, Robert B, 1986. "Forecasting with Bayesian Vector Autoregressions-Five Years of Experience," Journal of Business & Economic Statistics, American Statistical Association, vol. 4(1), pages 25-38, January.
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  12. Svensson, Lars E O, 2005. "Monetary Policy with Judgement: Forecast Targeting," CEPR Discussion Papers 5072, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  13. Villani, Mattias, 2005. "Inference in Vector Autoregressive Models with an Informative Prior on the Steady State," Working Paper Series 181, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
  14. Adolfson, Malin & Andersson, Michael K. & Lindé, Jesper & Villani, Mattias & Vredin, Anders, 2005. "Modern Forecasting Models in Action: Improving Macroeconomic Analyses at Central Banks," Working Paper Series 188, Sveriges Riksbank (Central Bank of Sweden), revised 01 Jun 2006. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jean-Pierre Allégret & Alain Sand-Zantman, 2008. "Does a Monetary Union protect again foreign shocks? An assessment of Latin American integration using a Bayesian VAR," Working Papers 0809, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure. [Downloadable!]
  2. Sebastian Sosa & Paul Cashin, 2009. "Macroeconomic Fluctuations in the Caribbean: the Role of Climatic and External Shocks," IMF Working Papers 09/159, International Monetary Fund. [Downloadable!]
  3. Patricio Jaramillo & Sergio Lehmann & David Moreno., 2009. "China, Precios de Commodities y Desempeño de América Latina: Algunos Hechos Estilizados," Cuadernos de Economía (Latin American Journal of Economics), Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 46(133), pages 67-105. [Downloadable!]
  4. Sebastian Sosa, 2008. "External Shocks and Business Cycle Fluctuations in Mexico: How Important are U.S. Factors?," IMF Working Papers 08/100, International Monetary Fund. [Downloadable!]
  5. Lavan Mahadeva & Javier Gómez Pineda, 2009. "The international cycle and Colombian monetary policy," BORRADORES DE ECONOMIA 005406, BANCO DE LA REPÚBLICA. [Downloadable!]
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  6. Andrew Swiston & Tamim Bayoumi, 2008. "Spillovers Across NAFTA," IMF Working Papers 08/3, International Monetary Fund. [Downloadable!]
  7. Sergio Lehmann & David Moreno & Patricio Jaramillo, 2007. "China, Commodity Prices and Latin American Performance: A Few Stylized Facts," Working Papers Central Bank of Chile 424, Central Bank of Chile. [Downloadable!]
  8. Kingsley I. Obiora, 2009. "Decoupling from the East Toward the West? Analyses of Spillovers to the Baltic Countries," IMF Working Papers 09/125, International Monetary Fund. [Downloadable!]
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