Spillovers to Central America in Light of the Crisis: What a Difference a Year Makes

 
Author/Editor: Swiston, Andrew
 
Publication Date: February 01, 2010
 
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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 investigates Central America's external linkages over the last fifteen years of increased integration in light of the 2008-09 global recession. Using structural VAR models, it is found that a one percent shock to U.S. growth shifts economic activity in Central America by 0.7 to 1 percent, on average. Spillovers from global shocks and the rest of the region also affect activity in some countries. Spillovers are mostly transmitted through advanced country financial conditions and fluctuations in external demand for Central American exports. Shocks to advanced economies associated with the 2008-09 financial crisis lowered economic activity in the region by 4 to 5 percent, on average, accounting for a majority of the observed slowdown. The impact was almost twice as large as elasticities estimated on pre-crisis data would have predicted. These results underscore the importance of operating credible policy frameworks that enable a countercyclical policy response to external shocks.
 
Series: Working Paper No. 10/35
Subject(s): Business cycles | Capital flows | Central America | Cross country analysis | Economic growth | Economic integration | Economic models | External shocks | Financial crisis | Global Financial Crisis 2008-2009 | Spillovers | Trade integration | United States | Workers remittances

Author's Keyword(s): Central America | Spillovers | Economic Integration | Business Cycles | Vector Autoregression
 
English
Publication Date: February 01, 2010
Format: Paper
Stock No: WPIEA2010035 Pages: 37
Price:
US$18.00 (Academic Rate:
US$18.00 )
 
 
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