Macroeconomic Fluctuations in the Caribbean: The Role of Climatic and External Shocks

Sebastian Sosa and Paul Cashin ()

No 2009/159, IMF Working Papers from International Monetary Fund

Abstract: This paper develops country-specific VAR models with block exogeneity restrictions to analyze how exogenous factors affect business cycles in the Eastern Caribbean. It finds that external shocks play a key role, explaining more than half of macroeconomic fluctuations in the region. Domestic business cycles are especially vulnerable to changes in climatic conditions, with a natural disaster leading to an immediate and significant fall in output-but the effects do not appear to be persistent. Oil price and external demand shocks also contribute significantly to domestic macroeconomic fluctuations. An increase in oil prices (external demand) is contractionary (expansionary), and the effects dissipate up to three years after the shock.

Keywords: WP; external shock; economy; real interest rate; output fluctuation; open economy; Business cycle; external shocks; VAR; block exogeneity; Eastern Caribbean; oil price shock; ECCU country; economy block; world real interest rate shock; Real interest rates; Oil prices; Natural disasters; Business cycles; Vector autoregression; Caribbean; Global (search for similar items in EconPapers)
Pages: 27
Date: 2009-07-01
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Citations: View citations in EconPapers (9)

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