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External Shocks and Business Cycle Fluctuations in Mexico

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  • Sebastian Sosa
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    Abstract

    This paper examines the relative importance of external shocks as sources of business cycle fluctuations in Mexico, and identifies the dynamic responses of domestic output to foreign disturbances. Using a VAR model with block exogeneity restrictions, it finds that U.S. shocks explain a large share of Mexico''s macroeconomic fluctuations after NAFTA. This partly reflects greater trade integration-but also Mexico''s "Great Moderation," as the country escaped its former pattern of macro-financial crises. In this period, Mexico''s output fluctuations have been closely synchronized with the U.S. cycle, with a large and rapid impact of U.S. shocks on Mexican growth.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/100.

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    Length: 31
    Date of creation: 01 Apr 2008
    Date of revision:
    Handle: RePEc:imf:imfwpa:08/100

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    Related research

    Keywords: External shocks; Spillovers; Economic models; business cycle; business cycles; real gdp; gdp growth; idiosyncratic shocks; trade integration; domestic demand; business cycle fluctuations; growth rate; private consumption; export sector; external trade; domestic economy; intermediate goods; pre-nafta; trade channels; terms of trade; gdp growth rate; external financing; business cycle synchronization; sources of business cycle; bilateral trade; trade shocks; industry trade; oil prices; trading partners; trade flows; trading partner; growth accounting; multiplier effects; international trade; bilateral trade flows; vertical specialization; increased trade; open economy; regional trade integration; factor analysis; trade deficit; current account deficit; terms of trade shocks; transmission of shocks; oil revenues; output volatility; regional trade; import demand; oil exporters; trade ? exports;

    This paper has been announced in the following NEP Reports:

    References

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    1. David O. Cushman & Tao Zha, 1995. "Identifying monetary policy in a small open economy under flexible exchange rates," Working Paper 95-7, Federal Reserve Bank of Atlanta.
    2. P&aauml;r �sterholm & Jeromin Zettelmeyer, 2008. "The Effect of External Conditions on Growth in Latin America," IMF Staff Papers, Palgrave Macmillan, vol. 55(4), pages 595-623, December.
    3. Guillermo A. Calvo & Eduardo Fernández-Arias & Ernesto Talvi & Carmen M. Reinhart, 2001. "The Growth-Interest Rate Cycle in the United States and its Consequences for Emerging Markets," IDB Publications 6491, Inter-American Development Bank.
    4. Guillermo A. Calvo & Eduardo Fernández-Arias & Ernesto Talvi & Carmen M. Reinhart, 2001. "Growth and External Financing in Latin America," IDB Publications 6490, Inter-American Development Bank.
    5. Jeffrey A. Frankel & Andrew K. Rose, 1996. "The Endogeneity of the Optimum Currency Area Criteria," NBER Working Papers 5700, National Bureau of Economic Research, Inc.
    6. Robert A Buckle & Kunhong Kim & Heather Kirkham & Nathan McLellan & Jared Sharma, 2002. "A structural VAR model of the New Zealand business cycle," Treasury Working Paper Series 02/26, New Zealand Treasury.
    7. Hoffmaister, Alexander W. & Roldos, Jorge E., 2001. "The Sources of Macroeconomic Fluctuations in Developing Countries: Brazil and Korea," Journal of Macroeconomics, Elsevier, vol. 23(2), pages 213-239, April.
    8. Raddatz, Claudio, 2007. "Are external shocks responsible for the instability of output in low-income countries?," Journal of Development Economics, Elsevier, vol. 84(1), pages 155-187, September.
    9. Torres, Alberto & Vela, Oscar, 2003. "Trade integration and synchronization between the business cycles of Mexico and the United States," The North American Journal of Economics and Finance, Elsevier, vol. 14(3), pages 319-342, December.
    10. James H. Stock & Mark W. Watson, 2001. "Vector Autoregressions," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 101-115, Fall.
    11. Tamim Bayoumi & Andrew Swiston, 2008. "Spillovers Across Nafta," IMF Working Papers 08/3, International Monetary Fund.
    12. M. Ayhan Kose & Christopher M. Towe & Guy Meredith, 2004. "How Has Nafta Affected the Mexican Economy? Review and Evidence," IMF Working Papers 04/59, International Monetary Fund.
    13. Jorge Herrera Hernández, 2004. "Business cycles in Mexico and the United States: Do they share common movements?," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 303-323, November.
    14. Manuel Ramos Francia & Daniel Chiquiar, 2004. "Bilateral Trade and Business Cycle Synchronization: Evidence from Mexico and United States Manufacturing Industries," Working Papers 2004-05, Banco de México.
    15. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    16. M. Ayhan Kose & Kei-Mu Yi, 2001. "International Trade and Business Cycles: Is Vertical Specialization the Missing Link?," American Economic Review, American Economic Association, vol. 91(2), pages 371-375, May.
    17. Dungey, Mardi & Pagan, Adrian, 2000. "A Structural VAR Model of the Australian Economy," The Economic Record, The Economic Society of Australia, vol. 76(235), pages 321-42, December.
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    Cited by:
    1. Maswana, Jean-Claude, 2010. "Will China’s Recovery Affect Africa’s Prospects for Economic Growth?," Working Papers 19, JICA Research Institute.
    2. repec:hal:wpaper:hal-00493384 is not listed on IDEAS
    3. repec:hal:cepnwp:hal-00610024 is not listed on IDEAS

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