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Macroeconomic Fluctuations in the Caribbean: The Role of Climatic and External Shocks

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  • Mr. Sebastian Sosa
  • Mr. Paul Cashin

Abstract

This paper develops country-specific VAR models with block exogeneity restrictions to analyze how exogenous factors affect business cycles in the Eastern Caribbean. It finds that external shocks play a key role, explaining more than half of macroeconomic fluctuations in the region. Domestic business cycles are especially vulnerable to changes in climatic conditions, with a natural disaster leading to an immediate and significant fall in output-but the effects do not appear to be persistent. Oil price and external demand shocks also contribute significantly to domestic macroeconomic fluctuations. An increase in oil prices (external demand) is contractionary (expansionary), and the effects dissipate up to three years after the shock.

Suggested Citation

  • Mr. Sebastian Sosa & Mr. Paul Cashin, 2009. "Macroeconomic Fluctuations in the Caribbean: The Role of Climatic and External Shocks," IMF Working Papers 2009/159, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2009/159
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    References listed on IDEAS

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    Cited by:

    1. Ms. Juliana Dutra Araujo, 2009. "Fiscal Cycles in the Caribbean," IMF Working Papers 2009/158, International Monetary Fund.
    2. Cengiz TUNC & Mustafa Kilinc, 2018. "Exchange Rate Pass‐Through In A Small Open Economy: A Structural Var Approach," Bulletin of Economic Research, Wiley Blackwell, vol. 70(4), pages 410-422, October.
    3. Nlandu Mamingi & Patrice Borda, 2015. "The Determinants of Economic Growth in The Countries of the Organization of the Eastern Caribbean States [Croissance économique-Econométrie ARDL]," Post-Print hal-02532219, HAL.
    4. Ms. Nita Thacker & Mr. Sebastian Acevedo Mejia & Mr. Roberto Perrelli, 2012. "Caribbean Growth in an International Perspective: The Role of Tourism and Size," IMF Working Papers 2012/235, International Monetary Fund.
    5. Adrian Boos & Karin Holm‐Müller, 2012. "A theoretical overview of the relationship between the resource curse and genuine savings as an indicator for “weak” sustainability," Natural Resources Forum, Blackwell Publishing, vol. 36(3), pages 145-159, August.
    6. Mr. Sebastian Sosa, 2008. "External Shocks and Business Cycle Fluctuations in Mexico: How Important are U.S. Factors?," IMF Working Papers 2008/100, International Monetary Fund.
    7. BORJA, Karla, 2013. "Home And Host Country Business Cycles And Remittances: The Case Of El Salvador And The Dominican Republic," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 13(2), pages 101-118.
    8. Butkiewicz, James L. & Gordon, Leo-Rey C., 2013. "The Economic Growth Effect of Offshore Banking in Host Territories: Evidence from the Caribbean," World Development, Elsevier, vol. 44(C), pages 165-179.

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