Business cycles, international trade and capital flows: evidence from Latin America

Abstract

This paper adopts a flexible framework to assess both short- and long-run business cycle linkages between the Latin American (LA) bloc and the four largest economies in the world (namely the US, the Euro area, Japan and China) over the period 1980:I–2011:IV. The result indicates that the LA region is largely dependent on external developments, especially in the years after the great recession of 2008 and 2009. The trade channel appears to be the most important source of business cycle co-movement, whilst capital flows are found to have a limited role, especially in the very short run.