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The Influence of “Big Brothers: ” How Important are Regional Factors for Uruguay?
Author:
Mr. Sebastian Sosa
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Series:
IMF Working Papers
Volume/Issue:
Volume 2010: Issue 060
Language:
English
Publication Date:
01 Mar 2010
DOI:
https://doi.org/10.5089/9781451963847.001
ISBN:
9781451963847
ISSN:
1018-5941
Pages:
26
Keywords:
WP; Uruguay; Argentina; Brazil; external shock
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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 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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2010: Issue 060