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Intra-Regional Spillovers in South America

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Author Info

  • Sebastian Sosa
  • Gustavo Adler

Abstract

Shocks stemming from Brazil - the large neighbor in South America - have historically been a source of concern for policy-makers in other countries of the region. This paper studies the importance of Brazil’s influence on its neighboring economies, documenting trade linkages over the last two decades and quantifying spillover effects in a Vector Auto Regression setting. While trade linkages with Brazil are significant for the Southern Cone countries (Argentina, Bolivia, Chile, Paraguay, and Uruguay), they are very weak for others. Consistent with this evidence, econometric results show that, while the Southern Cone economies (especially Mercosur’s members) are vulnerable to output shocks from Brazil, the rest of South America is not. Spillovers can take two different forms: the transmission of Brazil-specific shocks and the amplification of global shocks—through their impact on Brazil’s output. Finally, we also find suggestive evidence that depreciations of Brazil’s currency may not have significant impact on output of its key trading partners.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/145.

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Length: 22
Date of creation: 01 Jun 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/145

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Related research

Keywords: Spillovers; Latin America; Regional shocks; exchange rate; global shocks; commodity prices; real exchange rate; export performance; domestic demand; neighboring countries; exchange rate depreciation; exchange rates; trading partners; real exchange rate depreciation; idiosyncratic shocks; real effective exchange rate; bilateral real exchange rate; effective exchange rate; regional trade; exchange rate regime; bilateral exchange rate; trade integration; increased trade; trade flows; trading partner; regional integration; trade in services; real effective exchange rates; trade agreement; real exchange rates; limited exchange rate flexibility; effective exchange rates; trade channels; global integration; vulnerability to shocks; bilateral exchange rates; exchange rate developments; flexible exchange rate; exchange rate shock; flexible exchange rate regime; open economy;

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References

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  1. Sebastian Sosa & Gustavo Adler, 2011. "Commodity Price Cycles," IMF Working Papers 11/283, International Monetary Fund.
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Cited by:
  1. Gustavo Adler & Sebastian Sosa, 2013. "External Conditions and Debt Sustainability in Latin America," IMF Working Papers 13/27, International Monetary Fund.

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