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The Influence of “Big Brothers; ” How Important are Regional Factors for Uruguay?


  • Sebastian Sosa


This paper examines the role played by regional factors in Uruguay, identifies the sources and transmission mechanisms of shocks stemming from the region, and assesses how vulnerable Uruguay is to a potential crisis in the region. Using a VAR model with block exogeneity restrictions, it finds that shocks from Argentina-which account for about 20 percent of Uruguayan output fluctuations-have large and rapid effects. This is mainly due to the existence of idiosyncratic real and financial linkages between Uruguay and Argentina, which also explain the very high correlation between their business cycles. The analysis of previous crises in the region suggests that despite the importance of these strong linkages, and despite the fact the two deepest crises in recent Uruguayan history followed crises in Argentina, Uruguay is now clearly less vulnerable to financial contagion from the region.

Suggested Citation

  • Sebastian Sosa, 2010. "The Influence of “Big Brothers; ” How Important are Regional Factors for Uruguay?," IMF Working Papers 10/60, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:10/60

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    References listed on IDEAS

    1. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1993. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 108-151, March.
    2. Reinhart, Carmen & Calvo, Guillermo & Fernandez Arias, Eduardo & Talvi, Ernesto, 2001. "The Growth-Interest Rate Cycle in the United States and its Consequences for Emerging Markets," MPRA Paper 9075, University Library of Munich, Germany.
    3. Ernesto Talvi & Alfonso S. Bevilaqua & Marcelo Catena, 2001. "Integration, Interdependence, and Regional Goods: An Application to Mercosur," ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, vol. 0(Fall 2001), pages 153-208, August.
    4. Guillermo A. Calvo & Alejandro Izquierdo & Ernesto Talvi, 2002. "Sudden Stops, the Real Exchange Rate and Fiscal Sustainability: Argentina's Lessons," IDB Publications (Working Papers) 1909, Inter-American Development Bank.
    5. Alejandro Izquierdo, 2002. "Sudden Stops, the Real Exchange Rate and Fiscal Sustainability in Argentina," The World Economy, Wiley Blackwell, vol. 25(7), pages 903-923, July.
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    Cited by:

    1. Elizabeth Bucacos, 2017. "Financial Conditions and Monetary Policy in Uruguay: An MS-VAR Approach," IDB Publications (Working Papers) 8275, Inter-American Development Bank.
    2. repec:cml:incocp:3-10 is not listed on IDEAS
    3. José Luis Nolazco & Patricia Lengua-Lafosse & Nikita Céspedes, 2016. "Contribución de los choques externos en el crecimiento económico del Perú: un modelo semi-estructural," Working Papers 2016-80, Peruvian Economic Association.
    4. repec:cml:incoes:3 is not listed on IDEAS
    5. Elizabeth Bucacos, 2015. "Impact of international monetary policy in Uruguay: a FAVAR approach," Documentos de trabajo 2015003, Banco Central del Uruguay.
    6. Tatiana Didier & Sergio L. Schmukler, 2014. "Emerging Issues in Financial Development : Lessons from Latin America," World Bank Publications, The World Bank, number 16387, June.


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