The Influence of “Big Brothers: ” How Important are Regional Factors for Uruguay?

March 1, 2010

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Sebastian Sosa. The Influence of “Big Brothers: ” How Important are Regional Factors for Uruguay?, (USA: International Monetary Fund, 2010) accessed September 18, 2024

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 role played by regional factors in Uruguay, identifies the sources and transmission mechanisms of shocks stemming from the region, and assesses how vulnerable Uruguay is to a potential crisis in the region. Using a VAR model with block exogeneity restrictions, it finds that shocks from Argentina-which account for about 20 percent of Uruguayan output fluctuations-have large and rapid effects. This is mainly due to the existence of idiosyncratic real and financial linkages between Uruguay and Argentina, which also explain the very high correlation between their business cycles. The analysis of previous crises in the region suggests that despite the importance of these strong linkages, and despite the fact the two deepest crises in recent Uruguayan history followed crises in Argentina, Uruguay is now clearly less vulnerable to financial contagion from the region.

Subject: Business cycles, Commercial banks, Exports, Financial crises, Real exchange rates

Keywords: Argentina, Brazil, External shock, Uruguay, WP

Publication Details

Pages:

26
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2010/060
Stock No:

WPIEA2010060
ISBN:

9781451963847
ISSN:

1018-5941

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