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Macroeconomic Fluctuations in the Caribbean: The Role of Climatic and External Shocks
Author:
Mr. Sebastian Sosa
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and
Mr. Paul Cashin
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Series:
IMF Working Papers
Volume/Issue:
Volume 2009: Issue 159
Language:
English
Publication Date:
01 Jul 2009
DOI:
https://doi.org/10.5089/9781451873061.001
ISBN:
9781451873061
ISSN:
1018-5941
Pages:
27
Keywords:
WP; external shock; economy; real interest rate; output fluctuation; open economy; Business cycle; external shocks; VAR; block exogeneity; Eastern Caribbean; oil price shock; ECCU country; economy block; world real interest rate shock; Real interest rates; Oil prices; Natural disasters; Business cycles; Vector autoregression; Caribbean; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper develops country-specific VAR models with block exogeneity restrictions to analyze how exogenous factors affect business cycles in the Eastern Caribbean. It finds that external shocks play a key role, explaining more than half of macroeconomic fluctuations in the region. Domestic business cycles are especially vulnerable to changes in climatic conditions, with a natural disaster leading to an immediate and significant fall in output-but the effects do not appear to be persistent. Oil price and external demand shocks also contribute significantly to domestic macroeconomic fluctuations. An increase in oil prices (external demand) is contractionary (expansionary), and the effects dissipate up to three years after the shock.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund