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China's Emergence in the World Economy and Business Cycles in Latin America

  • Ambrogio Cesa-Bianchi
  • M. Hashem Pesaran
  • Alessandro Rebucci
  • TengTeng Xu

This paper investigates how changes in trade linkages between China, Latin America, and the rest of the world have altered the transmission of international business cycles to Latin America. Evidence based on a GVAR model for five large Latin American economies shows that the long-term impact of a China GDP shock on the typical Latin American economy has increased by three times since the mid-1990s, while the long-term impact of a US GDP shock has halved, while the transmission of shocks to Latin America and the rest of emerging Asia GDP (excluding China and India) has not changed. These changes owe more changes in China's impact on Latin America's traditional and largest trading partners than to increased direct bilateral trade linkages boosted by the decade-long commodity price boom. These findings have important implications for both Latin America and the international business cycle.

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Paper provided by Inter-American Development Bank in its series IDB Publications (Working Papers) with number 44738.

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Date of creation: Sep 2011
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Handle: RePEc:idb:brikps:44738
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  1. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September.
  2. Dées, Stéphane & Pesaran, Hashem & Smith, Vanessa & Smith, Ron P., 2010. "Supply, demand and monetary policy shocks in a multi-country New Keynesian Model," Working Paper Series 1239, European Central Bank.
  3. Pesaran, M. Hashem & Shin, Yongcheol, 1996. "Cointegration and speed of convergence to equilibrium," Journal of Econometrics, Elsevier, vol. 71(1-2), pages 117-143.
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  6. Garratt, Anthony & Lee, Kevin & Pesaran, M. Hashem & Shin, Yongcheol, 2006. "Global and National Macroeconometric Modelling: A Long-Run Structural Approach," OUP Catalogue, Oxford University Press, number 9780199296859, May.
  7. Stephen Leybourne & Tae-Hwan Kim & Paul Newbold, 2005. "Examination of Some More Powerful Modifications of the Dickey-Fuller Test," Journal of Time Series Analysis, Wiley Blackwell, vol. 26(3), pages 355-369, 05.
  8. Pesaran, M. Hashem & Schuermann, Til & Smith, L. Vanessa, 2009. "Rejoinder to comments on forecasting economic and financial variables with global VARs," International Journal of Forecasting, Elsevier, vol. 25(4), pages 703-715, October.
  9. Donald W.K. Andrews & Werner Ploberger, 1992. "Optimal Tests When a Nuisance Parameter Is Present Only Under the Alternative," Cowles Foundation Discussion Papers 1015, Cowles Foundation for Research in Economics, Yale University.
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  11. Stephane Dees & Filippo di Mauro & M. Hashem Pesaran & L. Vanessa Smith, 2004. "Exploring the International Linkages of the Euro Area: A Global VAR Analysis," IEPR Working Papers 04.6, Institute of Economic Policy Research (IEPR).
  12. TengTeng Xu, 2012. "The Role of Credit in International Business Cycles," Staff Working Papers 12-36, Bank of Canada.
  13. Pesaran, H. Hashem & Shin, Yongcheol, 1998. "Generalized impulse response analysis in linear multivariate models," Economics Letters, Elsevier, vol. 58(1), pages 17-29, January.
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  15. Johansen, Soren, 1992. "Cointegration in partial systems and the efficiency of single-equation analysis," Journal of Econometrics, Elsevier, vol. 52(3), pages 389-402, June.
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  17. Canova, Fabio, 2003. "The Transmission of US Shocks to Latin America," CEPR Discussion Papers 3963, C.E.P.R. Discussion Papers.
  18. Pesaran, M. H. & Shin, Y. & Smith, R. J., 1997. "Structural Analysis of Vector Error Correction Models with Exogenous I(1) Variables," Cambridge Working Papers in Economics 9706, Faculty of Economics, University of Cambridge.
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  24. Alexander W. Hoffmaister & Jorge Roldos, 1997. "Are Business Cycles Different in Asia and Latin America?," IMF Working Papers 97/9, International Monetary Fund.
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