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External Shocks and Business Cycle Fluctuations in Mexico; How Important Are U.S. Factors?

  • Sebastian Sosa
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    This paper examines the relative importance of external shocks as sources of business cycle fluctuations in Mexico, and identifies the dynamic responses of domestic output to foreign disturbances. Using a VAR model with block exogeneity restrictions, it finds that U.S. shocks explain a large share of Mexico''s macroeconomic fluctuations after NAFTA. This partly reflects greater trade integration-but also Mexico''s "Great Moderation," as the country escaped its former pattern of macro-financial crises. In this period, Mexico''s output fluctuations have been closely synchronized with the U.S. cycle, with a large and rapid impact of U.S. shocks on Mexican growth.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/100.

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    Length: 31
    Date of creation: 01 Apr 2008
    Date of revision:
    Handle: RePEc:imf:imfwpa:08/100
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    1. Robert A Buckle & Kunhong Kim & Heather Kirkham & Nathan McLellan & Jared Sharma, 2002. "A structural VAR model of the New Zealand business cycle," Treasury Working Paper Series 02/26, New Zealand Treasury.
    2. Guillermo A. Calvo & Eduardo Fernández-Arias & Ernesto Talvi & Carmen M. Reinhart, 2001. "The Growth-Interest Rate Cycle in the United States and its Consequences for Emerging Markets," IDB Publications (Working Papers) 6491, Inter-American Development Bank.
    3. Reinhart, Carmen & Calvo, Guillermo & Fernandez Arias, Eduardo & Talvi, Ernesto, 2001. "Growth and External Financing in Latin America," MPRA Paper 9074, University Library of Munich, Germany.
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    6. Sebastian Sosa & Paul Cashin, 2009. "Macroeconomic Fluctuations in the Caribbean; The Role of Climatic and External Shocks," IMF Working Papers 09/159, International Monetary Fund.
    7. James H. Stock & Mark W. Watson, 2001. "Vector Autoregressions," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 101-115, Fall.
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    13. Raddatz, Claudio, 2007. "Are external shocks responsible for the instability of output in low-income countries?," Journal of Development Economics, Elsevier, vol. 84(1), pages 155-187, September.
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    16. M. Ayhan Kose & Christopher M. Towe & Guy Meredith, 2004. "How Has Nafta Affected the Mexican Economy? Review and Evidence," IMF Working Papers 04/59, International Monetary Fund.
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    18. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
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