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Output fluctuations in Latin America - what explains the recent slowdown?

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  • Herrera, Santiago
  • Perry, Guillermo
  • Quintero, Neile

Abstract

The authors explain Latin America's growth slowdown in 1998-1999. To do so, they use two complementary methodologies. The first aims at determining how much of the slowdown can be explained by specific external factors: the terms of trade, international interest rates, spreads on external debt, capital flows, and climatological factors (El Nino). Using quarterly GDP data for the eight largest countries in the region, the authors estimate a dynamic panel showing that 50-60 percent of the slowdown was due to these external factors. The second approach allows for effects on output by some endogeneous variables, such as domestic real interest rates, and real exchange rates. Using monthly industrial performance data, the authors estimate country-specific generalized vector auto-regressions (GVAR) for the largest countries. They find that during the sample period (1992-98) output volatility is mostly associated with shocks to domestic factors, but the slowdown in the sub-period 1998-99 is explained more than 60 percent by shocks to the external factors.

Suggested Citation

  • Herrera, Santiago & Perry, Guillermo & Quintero, Neile, 2000. "Output fluctuations in Latin America - what explains the recent slowdown?," Policy Research Working Paper Series 2333, The World Bank.
    • Handle: RePEc:wbk:wbrwps:2333
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    References listed on IDEAS

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    1. Mr. Willy A Hoffmaister & Mr. Jorge Roldos, 1997. "Are Business Cycles Different in Asia and Latin America?," IMF Working Papers 1997/009, International Monetary Fund.
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    4. P.R. Agenor & J. Aizenman & A. Hoffmaister, 1998. "Contagion, Bank Lending Spreads and Output Fluctuations," NBER Working Papers 6850, National Bureau of Economic Research, Inc.
    5. Steven B. Kamin & Marc Klau, 1997. "Some multi-country evidence on the effects of real exchange rates on output," BIS Working Papers 48, Bank for International Settlements.
    6. Joseph Joyce & Linda Kamas, 1997. "The relative importance of foreign and domestic shocks to output and prices in Mexico and Colombia," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 133(3), pages 458-478, September.
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    Cited by:

    1. Calderón, César & Fuentes, J. Rodrigo, 2014. "Have business cycles changed over the last two decades? An empirical investigation," Journal of Development Economics, Elsevier, vol. 109(C), pages 98-123.
    2. Herrera, Santiago, 2005. "Policy mix, public debt management, and fiscal rules - lessons from the 2002 Brazilian crisis," Policy Research Working Paper Series 3512, The World Bank.

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