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

 
Author/Editor: Sosa, Sebastian
 
Publication Date: March 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 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.
 
Series: Working Paper No. 10/60
Subject(s): Argentina | Banking crisis | Banking systems | Business cycles | Cross country analysis | Economic growth | Economic integration | Economic models | Regional shocks | Spillovers | Uruguay

Author's Keyword(s): business cycle | regional shocks | VAR | financial crisis | Uruguay
 
English
Publication Date: March 01, 2010
Format: Paper
Stock No: WPIEA2010060 Pages: 26
Price:
US$18.00 (Academic Rate:
US$18.00 )
 
 
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