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Macroeconomic Fluctuations in the Caribbean

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  • Sebastian Sosa
  • Paul Cashin

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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Bibliographic Info

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

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Length: 27
Date of creation: 01 Jul 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/159

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Related research

Keywords: External shocks; Climatic changes; Economic models; Regional shocks; gdp growth; real gdp; business cycles; business cycle; domestic economy; oil prices; open economy; business cycle fluctuations; world demand; output growth; economic growth; sources of business cycle; open economies; per capita income; source of business cycle; external financing; exogenous shock; world growth; export structure; domestic shocks; commodity prices; long-term economic growth; economic cooperation; global integration; growth rates; gdp growth rates; output volatility; income losses; domestic ones;

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References

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  1. Paul Cashin & Antonio Lemus, 2012. "The Eastern Caribbean Currency Union," IMF Working Papers 12/17, International Monetary Fund.
  2. Allan D. Brunner, 1998. "El Nino and world primary commodity prices: warm water or hot air?," International Finance Discussion Papers 608, Board of Governors of the Federal Reserve System (U.S.).
  3. 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.
  4. Reinhart, Carmen & Calvo, Guillermo & Fernandez Arias, Eduardo & Talvi, Ernesto, 2001. "The Growth-Interest Rate Cycle in the United States and its Consequences for Emerging Markets," MPRA Paper 9075, University Library of Munich, Germany.
  5. James H. Stock & Mark W. Watson, 2001. "Vector Autoregressions," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 101-115, Fall.
  6. 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.
  7. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1993. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 108-151, March.
  8. Raddatz, Claudio, 2005. "Are external shocks responsible for the instability of output in low income countries?," Policy Research Working Paper Series 3680, The World Bank.
  9. Paul Cashin, 2004. "Caribbean Business Cycles," IMF Working Papers 04/136, International Monetary Fund.
  10. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  11. 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.
  12. Tobias N. Rasmussen, 2004. "Macroeconomic Implications of Natural Disasters in the Caribbean," IMF Working Papers 04/224, International Monetary Fund.
  13. 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.
  14. 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. Butkiewicz, James L. & Gordon, Leo-Rey C., 2013. "The Economic Growth Effect of Offshore Banking in Host Territories: Evidence from the Caribbean," World Development, Elsevier, vol. 44(C), pages 165-179.
  2. Sebastian Sosa, 2008. "External Shocks and Business Cycle Fluctuations in Mexico," IMF Working Papers 08/100, International Monetary Fund.

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