External Shocks and Business Cycle Fluctuations in Mexico: How Important are U.S. Factors?

Author/Editor:

Sebastian Sosa

Publication Date:

April 1, 2008

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper examines the relative importance of external shocks as sources of business cycle fluctuations in Mexico, and identifies the dynamic responses of domestic output to foreign disturbances. Using a VAR model with block exogeneity restrictions, it finds that U.S. shocks explain a large share of Mexico's macroeconomic fluctuations after NAFTA. This partly reflects greater trade integration-but also Mexico's "Great Moderation," as the country escaped its former pattern of macro-financial crises. In this period, Mexico's output fluctuations have been closely synchronized with the U.S. cycle, with a large and rapid impact of U.S. shocks on Mexican growth.

Series:

Working Paper No. 2008/100

Subject:

Business cycles Exports Imports Industrial production Oil prices

English

Publication Date:

April 1, 2008

ISBN/ISSN:

9781451869613/1018-5941

Stock No:

WPIEA2008100

Pages:

31

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