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Output Fluctuations in Latin America: What Explains the Recent Slowdown?

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  • Santiago Herrera

    (The World Bank)

  • Guillermo Perry

    (The World Bank)

  • Neile Quintero
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    Abstract

    The object of the paper is to explain Latin America’s growth slowdown experienced in 1998/99. To do so we used two complementary methodologies. The first one aimed at determining how much of the slowdown could be explained by specific external factors, namely, the terms of trade, international interest rates, spreads on external debt, capital flows and climatological factors (El Nino). Using quarterly GDP data for the 8 largest countries of the region, we estimate a dynamic panel that allowed to calculate that between 50% and 60% of the slowdown was due to the role of these external factors. The second approach allows for the role of some endogenous variables, like domestic real interest rates and real exchange rates, to affect output. Using monthly industrial production data, we estimate country-specific Generalized Vector Autoregressions (GVAR) for the largest countries. We found that during the whole sample period (1992-1998) output volatility was mostly associated with shocks to domestic factors, but the slowdown in the sub- period 1998-1999 was explained in more than 60% by the external factors’ shocks.

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    Bibliographic Info

    Paper provided by EconWPA in its series Macroeconomics with number 0004012.

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    Date of creation: 05 Jun 2000
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    Handle: RePEc:wpa:wuwpma:0004012

    Note: Type of Document - Word; prepared on IBM PC ; to print on HP;
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    Web page: http://128.118.178.162

    Related research

    Keywords: Terms of trade; spreads on external debt; capital flows; real interest rates; real exchange rates; generalized vector autoregressions (GVAR);

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    References

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    1. Hong Liang & C. John McDermott & Paul Cashin, 1999. "How Persistent Are Shocks to World Commodity Prices?," IMF Working Papers 99/80, International Monetary Fund.
    2. P.R. Agenor & J. Aizenman & A. Hoffmaister, 1998. "Contagion, Bank Lending Spreads and Output Fluctuations," NBER Working Papers 6850, National Bureau of Economic Research, Inc.
    3. Alexander W. Hoffmaister & Jorge Roldos, 1997. "Are Business Cycles Different in Asia and Latin America?," IMF Working Papers 97/9, International Monetary Fund.
    4. Steven B. Kamin & Marc Klau, 1998. "Some multi-country evidence on the effects of real exchange rates on output," International Finance Discussion Papers 611, Board of Governors of the Federal Reserve System (U.S.).
    5. Shaghil Ahmed, 1999. "Sources of economic fluctuations in Latin America and implications for choice of exchange rate regimes," International Finance Discussion Papers 656, Board of Governors of the Federal Reserve System (U.S.).
    6. Joseph Joyce & Linda Kamas, 1997. "The relative importance of foreign and domestic shocks to output and prices in Mexico and Colombia," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 133(3), pages 458-478, September.
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