Latin America in the global financial cycle: Vulnerability or resilience? An analysis of the Argentine case

Abstract

This work investigates the effects of an increase of the federal funds rate in the United States could generate on Latin American economies, taking as given the existence of a global financial cycle. This cycle is represented by a comovement between different financial variables at the international level. After carrying out an empirical analysis of gross capital flows for different countries, a VAR model is implemented for Argentina in order to compute Impulse-Response functions. The model results indicate that credit and terms of trade respond significantly to VIX impulses. The empirical analysis, together with the model results, show the important extent to which peripheral economies are vulnerable to the global financial cycle.

Date of presentation: 02-01-2023

Date of approval: 10-09-2023

JEL classification: E44, F40, G15