Discussion paper

DP7671 Common Factors in Latin America?s Business Cycles

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


Timmermann, A, M Aiolfi and L Catão (2010), ‘DP7671 Common Factors in Latin America?s Business Cycles ‘, CEPR Discussion Paper No. 7671. CEPR Press, Paris & London. https://cepr.org/publications/dp7671