I. Introduction; II. Stylized Facts; A. Trade Linkages; B. Financial Linkages; C. Remittances; III. Literature Review; A. Central America Linkages; B. Common Business Cycles; IV. Data and Methodology; A. Data; B. The Common Cycles Method; V. Results; A. Growth Correlations; B. Four Common Trends and Three Common Cycles; C. Trends and Cycle Decomposition; D. Cyclical Correlations; E. Cyclical and Trend Elasticities to the United States; F. Variance Decomposition by Factor; VI. Summary and Concluding Remarks; A. Cyclical Linkages-Stronger Than We Thought; B. How Will Linkages Evolve?
C. Policy ImplicationsVII. References; VIII. Appendix
Summary
The economies of Central America share a close relationship with the United States, with considerable comovement of GDP growth over a long period of time. Trade, the financial sector, and remittance flows are all potential channels through which the U.S. cycle could affect the region. But just how dependent is growth in the region on the U.S.? Using the common cycles method of Vahid and Engle (1993), this paper suggests that the business cycle is dominated by the U.S.; region-specific growth drivers tend to be long-lasting shocks, rather than temporary fluctuations. The most cyclically sensitive countries include Costa Rica, El Salvador, and Honduras
Bibliography
Includes bibliographical references (pages 23-24)
Notes
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