Common and Idiosyncratic Components of Latin American Business Cycles Connectedness

Luciano Campos () and Jesus Ruiz

No 91, Working Papers from Red Nacional de Investigadores en Economía (RedNIE)

Abstract: This paper investigates the evolution of business cycles synchronization in Latin America since the 1990’s. To do so, a Vector Autoregressive model is fed, alternatively, with the countries’ Industrial Production Indexes and with these series filtered by the US financial conditions index, which is considered as a common component affecting business cycles in the region. Additionally, a Markov switching model is estimated to identify regional recessions. Our findings indicate that business cycles connectedness rise significantly during regional recessions and that the common factor plays an important role. The evidence supports the usefulness of policy coordination among Latin American economies to cushion the spillover effects of exogenous shocks, and helps to identify subgroups of countries for which such coordination is recommendable.

Keywords: Connectedness indexes; Vector autoregressive analysis; Markov switching models; policy coordination; Latin American business cycles. (search for similar items in EconPapers)
JEL-codes: C32 E32 F44 N16 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2021-11
New Economics Papers: this item is included in nep-cwa and nep-mac
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https://rednie.eco.unc.edu.ar/files/DT/91.pdf (application/pdf)

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Journal Article: Common and idiosyncratic components of Latin American business cycles connectedness (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:aoz:wpaper:91

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