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Growt-at-risk in Costa Rica: an Open and Small Economy Perspective

Author

Listed:
  • Carlos Segura-Rodriguez

    (Department of Economic Research, Central Bank of Costa Rica)

  • David Ching-Vindas

    (Department of Economic Research, Central Bank of Costa Rica)

Abstract

This paper presents a new estimation of a Financial Conditions Index (FCI) and, following Adrian et al. (2019), the first growth-at-risk analysis for the Costa Rican economy. The FCI is constructed using the dynamic factor model technique since 1996. For those variables that are reported after this date, we use Stock y Watson (2002) proposal to fill for the missing values. The FCI effectively captures recent episodes of restrictive and lax financial conditions. The growth-at-risk analysis incorporates the impact of terms of trade to account for international risks relevant to a small, open economy like Costa Rica. The results show that, at one and four quarters ahead, both restrictive financial conditions and improvements in terms of trade have a negative and statistically significant effect on the 5th percentile of growth, but not on other percentiles or on the expected value. This underscores the importance of assessing how financial conditions and terms of trade influence risks to future economic growth. ***Resumen: Este trabajo presenta una nueva estimación de un Índice de Condiciones Financieras (ICF) y, con base en Adrian, Boyarchenko y Giannone (2019), el primer análisis de crecimiento en riesgo (Growth-at-Risk) para la economía costarricense. El ICF se construye con la metodología de factores dinámicos a partir de 1996. Se utiliza la propuesta de Stock y Watson (2002) para incluir variables para las que se tiene información para años posteriores. El ICF replica de manera apropiada los episodios recientes de condiciones financieras restrictivas y laxas. En el análisis de crecimiento en riesgo, se incluyó el impacto de los términos de intercambio para captar riesgos internacionales relevantes para una economía pequeña y abierta como Costa Rica. Los resultados indican que, a un trimestre y a cuatro trimestres, tanto las condiciones financieras restrictivas como la mejora en los términos de intercambio tienen un efecto negativo y estadísticamente significativo para el percentil 5, pero no para los demás percentiles ni en el nivel promedio. Esto subraya la importancia de evaluar cómo las condiciones financieras y los términos de intercambio influyen en los riesgos para el crecimiento económico futuro.

Suggested Citation

  • Carlos Segura-Rodriguez & David Ching-Vindas, 2025. "Growt-at-risk in Costa Rica: an Open and Small Economy Perspective," Documentos de Trabajo 2501, Banco Central de Costa Rica.
    • Handle: RePEc:apk:doctra:2501
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    File URL: https://repositorioinvestigaciones.bccr.fi.cr/handle/20.500.12506/500
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    References listed on IDEAS

    as
    1. Tobias Adrian & Federico Grinberg & Nellie Liang & Sheheryar Malik & Jie Yu, 2022. "The Term Structure of Growth-at-Risk," American Economic Journal: Macroeconomics, American Economic Association, vol. 14(3), pages 283-323, July.
    2. Doz, Catherine & Giannone, Domenico & Reichlin, Lucrezia, 2011. "A two-step estimator for large approximate dynamic factor models based on Kalman filtering," Journal of Econometrics, Elsevier, vol. 164(1), pages 188-205, September.
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    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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