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The Influence of “Big Brothers: ” How Important are Regional Factors for Uruguay?

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  • Mr. Sebastian Sosa

Abstract

This paper examines the role played by regional factors in Uruguay, identifies the sources and transmission mechanisms of shocks stemming from the region, and assesses how vulnerable Uruguay is to a potential crisis in the region. Using a VAR model with block exogeneity restrictions, it finds that shocks from Argentina-which account for about 20 percent of Uruguayan output fluctuations-have large and rapid effects. This is mainly due to the existence of idiosyncratic real and financial linkages between Uruguay and Argentina, which also explain the very high correlation between their business cycles. The analysis of previous crises in the region suggests that despite the importance of these strong linkages, and despite the fact the two deepest crises in recent Uruguayan history followed crises in Argentina, Uruguay is now clearly less vulnerable to financial contagion from the region.

Suggested Citation

  • Mr. Sebastian Sosa, 2010. "The Influence of “Big Brothers: ” How Important are Regional Factors for Uruguay?," IMF Working Papers 2010/060, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2010/060
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    References listed on IDEAS

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    1. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1993. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 108-151, March.
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    3. Calvo, Guillermo A. & Fernández-Arias, Eduardo & Talvi, Ernesto & Reinhart, Carmen M., 2001. "The Growth-Interest Rate Cycle in the United States and its Consequences for Emerging Markets," IDB Publications (Working Papers) 1425, Inter-American Development Bank.
    4. Ernesto Talvi & Alfonso S. Bevilaqua & Marcelo Catena, 2001. "Integration, Interdependence, and Regional Goods: An Application to Mercosur," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2001), pages 153-208, August.
    5. International Monetary Fund, 2006. "Uruguay: Selected Issues," IMF Staff Country Reports 2006/427, International Monetary Fund.
    6. Carmen Reinhart & Guillermo A. Calvo & Eduardo Fernández-Arias & Ernesto Talvi, 2001. "The Growth-Interest Rate Cycle in the United States and its Consequences for Emerging Markets," Research Department Publications 4279, Inter-American Development Bank, Research Department.
    7. Alejandro Izquierdo, 2002. "Sudden Stops, the Real Exchange Rate and Fiscal Sustainability in Argentina," The World Economy, Wiley Blackwell, vol. 25(7), pages 903-923, July.
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    Citations

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    Cited by:

    1. Bucacos, Elizabeth, 2017. "Financial Conditions and Monetary Policy in Uruguay: An MS-VAR Approach," IDB Publications (Working Papers) 8275, Inter-American Development Bank.
    2. Elizabeth Bucacos, 2018. "Financial Conditions and Monetary Policy in Uruguay: An MS-VAR Approach," MIC 2018: Managing Global Diversities; Proceedings of the Joint International Conference, Bled, Slovenia, 30 May–2 June 2018,, University of Primorska Press.
    3. Elizabeth Bucacos, 2017. "Impact of International Monetary Policy in Uruguay: A favar Approach," Investigación Conjunta-Joint Research, in: Ángel Estrada García & Alberto Ortiz Bolaños (ed.), International Spillovers of Monetary Policy, edition 1, chapter 10, pages 321-367, Centro de Estudios Monetarios Latinoamericanos, CEMLA.
    4. Elizabeth Bucacos & Javier García-Cicco & Miguel Mello, 2023. "Foreign Exchange Interventions and Foreign Shocks. The case of Uruguay," Documentos de trabajo 2023008, Banco Central del Uruguay.
    5. Ángel Estrada García & Alberto Ortiz Bolaños (ed.), 2017. "International Spillovers of Monetary Policy," Investigación Conjunta-Joint Research, Centro de Estudios Monetarios Latinoamericanos, CEMLA, edition 1, volume 1, number 3, December.
    6. Elizabeth Bucacos, 2015. "Impact of international monetary policy in Uruguay: a FAVAR approach," Documentos de trabajo 2015003, Banco Central del Uruguay.
    7. Tatiana Didier & Sergio L. Schmukler, 2014. "Emerging Issues in Financial Development : Lessons from Latin America," World Bank Publications - Books, The World Bank Group, number 16387.
    8. José Luis Nolazco & Patricia Lengua-Lafosse & Nikita Céspedes Reynaga, 2020. "Contribución de los choques externos en el crecimiento económico del Perú: un modelo semi-estructural," Capítulos de libros, in: Nikita Céspedes Reynaga & Norman V. Loayza & Nelson R. Ramírez Rondán (ed.), Crecimiento económico en el Perú: causas y consecuencias, edition 1, volume 1, chapter 3, pages 74-117, Universidad de San Martín de Porres.
    9. Guillermo Cruces & Gary S. Fields & David Jaume & Mariana Viollaz, 2015. "The growth-employment-poverty nexus in Latin America in the 2000s: Uruguay country study," WIDER Working Paper Series 083, World Institute for Development Economic Research (UNU-WIDER).
    10. Bibiana Lanzilotta & Gabriela Mordecki & Victoria Umpiérrez, 2018. "Political economic uncertainty in a small & open economy: the case of Uruguay," Documentos de Trabajo (working papers) 18-05, Instituto de Economía - IECON.
    11. Guillermo Cruces & Gary S. Fields & David Jaume & Mariana Viollaz, 2015. "The growth-employment-poverty nexus in Latin America in the 2000s: Uruguay country study," WIDER Working Paper Series wp-2015-083, World Institute for Development Economic Research (UNU-WIDER).

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