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Macroeconomic Fluctuations in the Caribbean: the Role of Climatic and External Shocks

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Author Info
Sebastian Sosa
Paul Cashin

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Abstract

This paper develops country-specific VAR models with block exogeneity restrictions to analyze how exogenous factors affect business cycles in the Eastern Caribbean. It finds that external shocks play a key role, explaining more than half of macroeconomic fluctuations in the region. Domestic business cycles are especially vulnerable to changes in climatic conditions, with a natural disaster leading to an immediate and significant fall in output-but the effects do not appear to be persistent. Oil price and external demand shocks also contribute significantly to domestic macroeconomic fluctuations. An increase in oil prices (external demand) is contractionary (expansionary), and the effects dissipate up to three years after the shock.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/159.

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Length: 27 pages
Date of creation: 28 Jul 2009
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Handle: RePEc:imf:imfwpa:09/159

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Related research
Keywords: Business cycles ; Caribbean ; Climatic changes ; Cross country analysis ; Economic models ; External shocks ; Regional shocks ;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
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  1. Tobias N. Rasmussen, 2004. "Macroeconomic Implications of Natural Disasters in the Caribbean," IMF Working Papers 04/224, International Monetary Fund. [Downloadable!]
  2. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January. [Downloadable!] (restricted)
  3. 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.
  4. James H. Stock & Mark W. Watson, 2001. "Vector Autoregressions," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 101-115, Fall. [Downloadable!] (restricted)
  5. Markus Rodlauer & Alfred Schipke, 2005. "Central America: Global Integration and Regional Cooperation," IMF Occasional Papers 243, International Monetary Fund.
  6. Paul Cashin, 2004. "Caribbean Business Cycles," IMF Working Papers 04/136, International Monetary Fund. [Downloadable!]
  7. Cushman, David O. & Zha, Tao, 1997. "Identifying monetary policy in a small open economy under flexible exchange rates," Journal of Monetary Economics, Elsevier, vol. 39(3), pages 433-448, August. [Downloadable!] (restricted)
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  8. 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. [Downloadable!] (restricted)
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  9. Pär Österholm & Jeromin Zettelmeyer, 2007. "The Effect of External Conditions on Growth in Latin America," IMF Working Papers 07/176, International Monetary Fund. [Downloadable!]
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This page was last updated on 2009-11-20.

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