Simulations show that despite increasing financial integration, output costs associated with global financial shocks in Latin America have declined in the past 15 years. Of course, the progress made so far does not make the region immune, but has helped it to ride more safely through the recent global financial waves. As we’ve pointed out previously, the region should take precautions in case of a bigger global downturn. But so far it can take credit for its hard work on the policy front.
We quantify the spillovers from Brazil to other countries in South America. The results confirm that Brazil has a significant influence on Southern Cone countries, particularly on Mercosur partners (Argentina, Paraguay, and Uruguay), but not on the Andean economies. For the Southern Cone countries, spillovers from Brazil can take two forms: the transmission of shocks originating in Brazil and the amplification (through Brazil) of global shocks. These two factors explain an important share of the fluctuations in economy activity in the Southern Cone countries.