Are Business Cycles Different in Asia and Latin America?

IMF Working Papers, January 1, 1997

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Are Business Cycles Different in Asia and Latin America?

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Bibliographic details

• Authors: Willy A Hoffmaister, Jorge Roldos
• Published: January 1, 1997
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451927313.001

Summary findings

• The paper compares business cycles in Asia and in Latin America using structural vector autoregression analysis with panel data.
• Main empirical findings:
  • (i) the main source of output fluctuations is supply shocks, even in the short run;
  • (ii) the real exchange rate is driven mostly by fiscal shocks; and
  • (iii) terms of trade shocks are important for trade balance fluctuations but not for output or real exchange rate fluctuations.
• Regional contrast:
  • In Latin America, as opposed to Asia, output is affected more by external and domestic demand shocks.

Methodology

• Structural vector autoregression analysis with panel data (as described in the paper).

Policy-relevant implications and interpretation

• Emphasis on supply-side shocks as primary drivers of output suggests policy attention to factors influencing supply (productivity, factor accumulation, structural reforms).
• The finding that the real exchange rate is driven mostly by fiscal shocks points to fiscal policy as a key determinant of real exchange-rate dynamics.
• Terms of trade shocks matter for trade balance fluctuations but not for output or real exchange rate fluctuations, indicating limited pass-through of terms of trade into output and real exchange-rate paths.
• The greater sensitivity of Latin American output to external and domestic demand shocks implies different stabilization priorities and tools compared with Asia.

Subject and keywords

• Subject: Economic theory, Exchange rates, Foreign exchange, International trade, Real exchange rates, Supply shocks, Terms of trade, Trade balance
• Keywords: Asia and Pacific, Exchange rates, interest rate, movements in Latin America, nominal exchange rate, open economy, price level, real exchange rate, Real exchange rates, Supply shocks, Terms of trade, terms of trade shock, Trade balance, trade balance movement, world interest rate shock, WP

Notice on views expressed

• "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."

IMF Working Paper — Are Business Cycles Different in Asia and Latin America? By Willy A Hoffmaister and Jorge Roldos. January 1, 1997.

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