Effects of external shocks on macroeconomic fluctuations in Pacific Alliance countries

Gabriel Rodríguez, Renato Vassallo and Paul Castillo

Economic Modelling, 2023, vol. 124, issue C

Abstract: Given Pacific Alliance (PA) countries’ dependence on the external sector amidst volatile global financial conditions and increased trade openness, it is important to understand the time-varying impact of external shocks on these economies to assess their resilience. We use data for 1994Q1-2019Q4 and VAR models with time-varying parameters and stochastic volatility to study the heterogeneity of responses to financial, real, and nominal external shocks. The results suggest that external shocks have played a significant role in domestic cycles (50% on average), but their impact became temporarily larger during the global low-interest-rate period; i.e., the impact of export price and Fed rate shocks on GDP increased the most, peaking in 2002–2011, whereas the effect of shocks originating in China, although the largest, remained stable. In addition, a more predictable and countercyclical monetary policy in response to commodity price shocks diminished the transmission of external shocks, thereby increasing PA economies’ external resilience.

Keywords: Macroeconomic fluctuations; External shocks; Autoregressive vectors with time-varying parameters; Stochastic volatility; Bayesian estimation and comparison; Pacific Alliance countries (search for similar items in EconPapers)
JEL-codes: C11 C32 F41 F44 F62 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0264999323001141
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:124:y:2023:i:c:s0264999323001141

DOI: 10.1016/j.econmod.2023.106302

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().