Discussion Paper Details

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Title: The Transmission of US Shocks to Latin America

Author(s): Fabio Canova

Publication Date: July 2003

Keyword(s): bayesian methods, business cycles, exchange rate regimes and structural shocks

Programme Area(s): International Macroeconomics

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.

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Bibliographic Reference

Canova, F. 2003. 'The Transmission of US Shocks to Latin America'. London, Centre for Economic Policy Research.