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Business Cycle and Macroeconomic Policy Coordination in MERCOSUR

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Abstract

The paper analyzes cyclical comovements in the Mercosur area differentiating idiosyncratic from common shocks. In the Mercosur (or any region for that matter) shocks can be country-specific, affecting only one country or a specific set of countries (for example, a weather-related shock, a domestic policy shock); or they can be common to the entire region (for example, a change in the conditions in international capital markets or a world recession). Propagation mechanisms, in turn, are important because a shock that was initially country-specific, originating in one country, might eventually spillover to others. We build on the unobserved component approach to decompose the Mercosur countries real GDP (seasonally adjusted) fluctuations into these three components and compare them with previous results. The main findings in the paper are: first, common factors originating in impulses stemming from changes in investor’s sentiment are relevant to explaining regional output comovements and the spillover effects between neighbors are significant. Second, volatility matters, and matters especially in the case of recent regional agreements. Supply shocks in Mercosur countries tend to be larger than in the US and European countries. Third, finance matters for both volatility and output/price dynamics. Accelerator effects may be important in explaining some features of the output/price dynamics that the standard models based on vector autoregression techniques are unable to account for..

Suggested Citation

  • Martín Gonzalez Rozada & José Fanelli, 2003. "Business Cycle and Macroeconomic Policy Coordination in MERCOSUR," Business School Working Papers uno, Universidad Torcuato Di Tella.
  • Handle: RePEc:udt:wpbsdt:uno
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    Cited by:

    1. Jean-Pierre Allegret & Alain Sand-Zantman, 2007. "Transmission des chocs et mécanismes d'ajustement dans le Mercosur," Revue de l'OFCE, Presses de Sciences-Po, vol. 101(2), pages 355-392.
    2. Machinea, José Luis & Rozenwurcel, Guillermo, 2005. "Macroeconomic coordination in Latin America: does it have a future?," Series Históricas 7858, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    3. Asta Ndongo & Ibrahima Thione Diop, 2021. "Economic and Monetary Integration in ECOWAS Countries: A Panel VAR Approach to Identify Macroeconomic Shocks," World Journal of Applied Economics, WERI-World Economic Research Institute, vol. 7(2), pages 61-87, December.
    4. International Monetary Fund, 2006. "Uruguay; Selected Issues," IMF Staff Country Reports 06/427, International Monetary Fund.
    5. Jean-Pierre Allegret & Alain Sand-Zantman, 2009. "Modeling the Impact of Real and Financial Shocks on Mercosur: The Role of the Exchange Rate Regime," Open Economies Review, Springer, vol. 20(3), pages 359-384, July.
    6. Jean-Pierre Allegret & Alain Sand-Zantman, 2010. "Processus d’intégration et coordination des politiques macroéconomiques dans le Mercosur : une approche en termes de cycles," L'Actualité Economique, Société Canadienne de Science Economique, vol. 86(2), pages 163-204.
    7. Jean-Pierre Allegret, 2007. "Disentangling Business Cycles and Macroeconomic policy in Mercosur: a VAR and an Unobserved Components Models Approaches," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 22, pages 482-514.
    8. Jean-Pierre Allegret & Alain Sand-Zantman, 2010. "Processus d'intégration et coordination des politiques macroéconomiques dans le Mercosur : une approche en termes de cycles," Post-Print halshs-00665778, HAL.

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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F02 - International Economics - - General - - - International Economic Order and Integration

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