This paper investigates the sensitivity of Colombian GDP growth to the surrounding macroeconomic environment. We estimate a Bayesian VAR model with informative steady-state priors for the Colombian economy using quarterly data from 1995 to 2007. A variance decomposition shows that world GDP growth and government spending are the most important factors, explaining roughly 17 and 16 percent of the variance in Colombian GDP growth respectively. The model, which is shown to forecast well out-of-sample, can also be used to analyze alternative scenarios. Generating both endogenous and conditional forecasts, we show that the impact on Colombian GDP growth of a substantial downturn in world GDP growth would be non-negligible but still a mild decline by historical standards
Bibliography
Includes bibliographical references (page 24)
Notes
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