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Macroeconomic fluctuations in the Eastern Caribbean: The role of climatic and external shocks

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  • Paul Cashin
  • Sebastian Sosa

Abstract

This article develops country-specific vector autoregressive (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.

Suggested Citation

  • Paul Cashin & Sebastian Sosa, 2013. "Macroeconomic fluctuations in the Eastern Caribbean: The role of climatic and external shocks," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 22(5), pages 729-748, August.
    • Handle: RePEc:taf:jitecd:v:22:y:2013:i:5:p:729-748
    DOI: 10.1080/09638199.2011.599854
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    References listed on IDEAS

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    1. International Monetary Fund, 2008. "Eastern Caribbean Currency Union: Selected Issues," IMF Staff Country Reports 2008/096, International Monetary Fund.
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    Cited by:

    1. Arnold McIntyre & Ahmed El-Ashram & Mr. Márcio Valério Ronci & Julien Reynaud & Ms. Natasha X Che & Ke Wang & Mr. Sebastian Acevedo Mejia & Mr. Mark Scott Lutz, 2016. "Caribbean Energy: Macro-Related Challenges," IMF Working Papers 2016/053, International Monetary Fund.
    2. Allan Wright & Patrice Borda, 2016. "Macroeconomic Fluctuations Under Natural Disaster Shocks in Central America and the Caribbean," IDB Publications (Working Papers) 97076, Inter-American Development Bank.
    3. Oladunni, Sunday, 2019. "External Shocks and Business Cycle Fluctuations in Oil-exporting Small Open Economies: The Case of Nigeria," MPRA Paper 98639, University Library of Munich, Germany.
    4. Wright, Allan & Borda, Patrice, 2016. "Macroeconomic Fluctuations Under Natural Disaster Shocks in Central America and the Caribbean," IDB Publications (Working Papers) 8039, Inter-American Development Bank.
    5. Cevik Serhan & Ghazanchyan Manuk, 2021. "Perfect Storm: Climate Change and Tourism," Journal of Globalization and Development, De Gruyter, vol. 12(1), pages 47-61, June.
    6. International Monetary Fund, 2016. "Belize: Selected Issues," IMF Staff Country Reports 2016/093, International Monetary Fund.
    7. Olivier R de Bandt & Luc Jacolin & Thibault Lemaire, 2021. "Climate Change in Developing Countries: Global Warming Effects, Transmission Channels and Adaptation Policies," Working Papers hal-03948704, HAL.
    8. Sedegah Kordzo & Odhiambo Nicholas M., 2021. "A Review of the Impact of External Shocks on Monetary Policy Effectiveness in Non-WAEMU Countries," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 31(3), pages 37-59, September.
    9. Mr. Sebastian Acevedo Mejia, 2014. "Debt, Growth and Natural Disasters A Caribbean Trilogy," IMF Working Papers 2014/125, International Monetary Fund.

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