Domestic, regional, or global shocks? A GVAR analysis of the Latin American business cycle

Crawford School of Public Policy | Arndt-Corden Department of Economics

Event details

PhD Seminar (Econ)

Date & time

Friday 21 June 2024


Seminar Room 7 JG Crawford Building and Online Zoom


Rubayat Chowdhury

This study examines the relative importance of domestic, regional, and global shocks on the business cycle of Latin America, comprising six emerging market commodity exporters: Argentina, Brazil, Chile, Colombia, Mexico, and Peru. Employing a Global Vector Autoregressive (GVAR) model and quarterly data over 1999-2021, this paper finds that global shocks are the major source of output fluctuation, falsifying earlier claims that domestic factors have a dominant role. The different outcomes result from the inclusion of China, which explains 20% of Latin America’s output variance. Shocks to global economic activity, liquidity, and commodity prices cumulatively explain 45% of the output variations over a longer forecast horizon. The commodity price shock has a transitory effect on the region’s output but greatly influences its external borrowing costs. Further, a global monetary expansion permanently increases the level of domestic output even when the currencies appreciate.

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