Working Paper: CEPR ID: DP3963
Authors: Fabio Canova
Abstract: I study whether and how US shocks are transmitted to eight Latin American countries. US shocks are identified using the procedure of Canova and De Nicolo? (2002) and treated as exogenous with respect to Latin American economies. Posterior estimates for individual and average effects are constructed. US Monetary shocks produce significant fluctuations in Latin America, but real demand and supply shocks do not. Floaters and currency boarders display similar output responses but different inflation and interest rate responses. The financial channel plays a crucial role in the transmission. US disturbances explain important portions of the variability Latin American macrovariables, produce continental cyclical fluctuations and, in two episodes, destabilizing nominal exchange rate effects. Policy implications are discussed.
Keywords: Bayesian methods; Business cycles; Exchange rate regimes; Structural shocks
JEL Codes: C68; E32; F11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| US monetary disturbances (E39) | Latin American macroeconomic variables (N16) |
| US real demand shocks (E39) | Latin American economy fluctuations (N16) |
| US supply shocks (E65) | Latin American economy fluctuations (N16) |
| US disturbances (N92) | variability of Latin American macrovariables (O54) |
| US monetary disturbances (E39) | continental output and inflation comovements (F44) |
| US disturbances (N92) | destabilizing effects on nominal exchange rates (F31) |
| Differences in responses of countries with floating and nonfloating exchange rates (F31) | magnitude of effects (C90) |
| Domestic fluctuations in Latin America (N16) | foreign origin (F22) |