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Why didn't the Global Financial Crisis hit Latin America?

Tjeerd Boonman (), Jan Jacobs () and Gerard Kuper ()

CIRANO Working Papers from CIRANO

Abstract: Latin America has a rich history of financial crises. However, it was relatively unharmed by the 2007-2009 Global Financial Crisis (GFC). This paper investigates why, and in particular the role of commodity prices and its institutional framework - in line with the fourth generation financial crisis model. We set up Early Warning Systems (EWS) for Argentina, Brazil and Mexico. These consist of an ordered logit model for currency crises for the period 1990-2007 with a dynamic factor model to deal with the large number of explanatory variables. We present forecasts for the period 2008-2009. We find that international indicators play an important role in explaining currency crises in Mexico, while banking indicators and commodities explain the currency crisis in Argentina and Brazil. Furthermore, debt and domestic economy indicators are relevant for Argentina and Mexico. Finally, we observe that currency crises in all three countries are related to institutional indicators. For none of the countries the Early Warning System would have issued an early warning for the GFC.

Keywords: Financial crises; Early Warning Systems; Latin America; dynamic factor models; ordered logit model (search for similar items in EconPapers)
JEL-codes: C25 G01 N26 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev and nep-ifn
Date: 2011-10-01
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Persistent link: https://EconPapers.repec.org/RePEc:cir:cirwor:2011s-63

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