Commodity prices and the business cycle in Latin America: Living and dying by commodities?

Maximo Camacho and Gabriel Perez-Quiros

The document analyzes the dynamic interactions between commodity prices and output growth of the seven biggest Latin American exporters: Argentina, Brazil, Colombia, Chile, Mexico, Peru and Venezuela. Using a novel definition of Markovswitching impulse response functions, the authors find that the response of their respective output growth to commodity price shocks is time-dependent, size-dependent and sign-dependent. Overall, the major evidence of asymmetries in output growth responses occurs when commodity price shocks lead to regime shifts. Accordingly, they consider that the design of optimal counter-cyclical stabilization policies in this region should take into account that the reactions of economic activity vary considerably across business cycle regimes.

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