Cyclical Fluctuations, Co-movement and the Role of External Shocks in Latin America

This paper compares the business cycles across five Latin American economies (Brazil, Chile, Colombia, Mexico and Peru) for the period 1997-2014. We estimate a Multi-Country VAR through Bayesian Methods, where the model takes into account dynamic interdependencies and time-varying parameters (Canova and Ciccarelli, 2009). We present regional and country-specific indicators of real economic activity. We find a significant common regional component, as well as significant country specific indicators, meaning that there exists some synchronization across business cycles, but at the same time there is some heterogeneity across these economies. We find some heterogeneity before the international financial crisis of 2008 and a more significant co-movent after that date. Furthermore, we explore the transmission at different dates of domestic (country specific) and external shocks such as Chinese GDP growth. Overall, we find that the transmission of both domestic and external shocks are somewhat stable after the Inflation Targeting adoption.