Macroeconomic Fluctuations in the Caribbean: The Role of Climatic and External Shocks

July 1, 2009

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Sebastian Sosa, and Paul Cashin. Macroeconomic Fluctuations in the Caribbean: The Role of Climatic and External Shocks, (USA: International Monetary Fund, 2009) accessed December 22, 2024

Disclaimer: 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

Summary

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.

Subject: Business cycles, Econometric analysis, Economic growth, Environment, Financial services, Natural disasters, Oil prices, Prices, Real interest rates, Vector autoregression

Keywords: Block exogeneity, Business cycle, Business cycles, Caribbean, Eastern Caribbean, ECCU country, Economy, Economy block, External shock, External shocks, Global, Natural disasters, Oil price shock, Oil prices, Open economy, Output fluctuation, Real interest rate, Real interest rates, VAR, Vector autoregression, World real interest rate shock, WP

Publication Details

Pages:

27
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2009/159
Stock No:

WPIEA2009159
ISBN:

9781451873061
ISSN:

1018-5941

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