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The Effect of External Conditions on Growth in Latin America

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  • P&aauml;r Österholm
  • Jeromin Zettelmeyer

Abstract

This paper investigates the sensitivity of Latin American GDP growth to external developments using a Bayesian vector-autoregressive model with informative steady-state priors. The model is estimated using quarterly data from 1994 to 2007 on key external and Latin American variables. It finds that 50 to 60 percent of the variation in Latin American GDP growth is accounted for by external shocks. Conditional forecasts for a variety of external scenarios suggest that Latin American growth is robust to moderate declines in commodity prices and external growth, but sensitive to more extreme shocks, particularly a combined external slowdown and tightening of world financial conditions. IMF Staff Papers (2008) 55, 595–623. doi:10.1057/imfsp.2008.20; published online 29 July 2008

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  • P&aauml;r Österholm & 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.
    • Handle: RePEc:pal:imfstp:v:55:y:2008:i:4:p:595-623
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