Cover IMF Working Papers
Spillovers to Central America in Light of the Crisis: What a Difference a Year Makes
Author: Mr. Andrew J Swiston
Series:
IMF Working Papers
Volume/Issue:
Volume 2010: Issue 035
Language:
English
Publication Date:
01 Feb 2010
DOI:
https://doi.org/10.5089/9781451962765.001
ISBN:
9781451962765
ISSN:
1018-5941
Pages:
37
Keywords:
WP; real GDP; external shock; trade; IMF staff calculation
Legal-disclaimer:
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 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.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund