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Discussion Paper Details

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Title: Common Factors in Latin America?s Business Cycles

Author(s): Marco Aiolfi, Luís A. V. Catão and Allan Timmermann

Publication Date: January 2010

Keyword(s): factor models, International business cycles and Latin America

Programme Area(s): Financial Economics

Abstract: We develop a common factor approach to reconstruct new business cycle indices for Argentina, Brazil, Chile, and Mexico ("LAC-4") from an unprecedentedly comprehensive dataset spanning 135 years. We establish the robustness of our indices through a variety of tests, use the indices to explore business cycle properties in LAC-4 and compare them with other countries across outward- and inward-looking policy regimes. We find that output persistence in LAC-4 has been consistently high across regimes, whereas volatility was strikingly high during the pre-1929 outward-looking regime but declined during the most recent shift towards greater openness. We also find a sizeable common regional factor driven by output and interest rates in advanced countries, including during inward-looking regimes

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Bibliographic Reference

Aiolfi, M, Catão, L and Timmermann, A. 2010. 'Common Factors in Latin America?s Business Cycles '. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=7671