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Booms and Busts in Latin America: The Role of External Factors

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  • Izquierdo, Alejandro
  • Romero, Randall
  • Talvi, Ernesto

Abstract

This paper analyzes the relevance of external factors in average quarterly GDP growth for 1990-2006 in the seven largest Latin American countries (LAC7). Modeling the relationship between LAC7 GDP and several external factors, it is found that those factors account for a significant share of variance in LAC7 GDP growth, and that external shocks produce significant responses. Likewise, a significant share of recent LAC7 growth performance can be explained by an external factor tailwind. Also evaluated is the impact of deterioration in external financial conditions. Finally, the relevance of these findings for policy evaluation is emphasized. Growth performance, the strength or weakness of macroeconomic fundamentals and the impact of domestic macro and micro policies on growth can only be properly appraised by first filtering out the effects of external factors.

Suggested Citation

  • Izquierdo, Alejandro & Romero, Randall & Talvi, Ernesto, 2011. "Booms and Busts in Latin America: The Role of External Factors," IDB Publications (Working Papers) 1612, Inter-American Development Bank.
  • Handle: RePEc:idb:brikps:1612
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    More about this item

    Keywords

    WP-631;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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