The impact of the US on Latin American business cycles: A new approach

Business cycles in Latin America have tended to be more volatile than those in wealthier nations such as the US. Accordingly, much research has been conducted on Latin business cycles, as well as the impact of the US on such fluctuations. Some research seeks to find how “integrated” cycles are in the US and Latin America, yielding conflicting results. We apply a new method to the question of business cycle synchronization between the US and nine Latin nations. We find that in the majority of cases integration has been rising in recent years. We also find, contrary to some previous studies, that integration does not appear to be affected by either the level of trade or of capital account openness. Finally, we find that the two countries that are dollarized – Ecuador and El Salvador – appear least integrated with the US. This last finding has potentially troubling implications in terms of the ability of these nations to adjust to asymmetric shocks vis-à-vis the US.