Business Cycles Accounting for Paraguay
This study investigates the role of domestic and external shocks in business cycle fluctuations in Paraguay during 1991–2012. Time-series methods and a structural model-based approach are used to conduct an integrated analysis of business cycles. F...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2015
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2015/06/24577785/business-cycles-accounting-paraguay http://hdl.handle.net/10986/22157 |
| Summary: | This study investigates the role of
domestic and external shocks in business cycle fluctuations
in Paraguay during 1991–2012. Time-series methods and a
structural model-based approach are used to conduct an
integrated analysis of business cycles. First, structural
vector autoregression is used to assess the role played by
external factors and domestic shocks in driving fluctuations
in gross domestic product through impulse response functions
and variance decompositions. The analysis finds that
external shocks such as terms of trade, world interest rate
and foreign demand account for over 50 percent of real gross
domestic product fluctuations. Given Paraguay’s strong
dependence on agriculture, an analysis is also done for the
agricultural and non-agricultural sectors separately. The
analysis finds that non-agricultural gross domestic product
is to a large extent driven by external shocks, which
account for over 50 percent of its volatility. In contrast,
the volatility in agricultural gross domestic product is
primarily due to shocks to domestic variables, mainly shocks
to agricultural output. A further difference between the
sectors is that shocks to government consumption are more
important for agricultural gross domestic product, while
shocks to the domestic real interest rate play a larger role
in the volatility of non-agricultural gross domestic
product. Second, the paper investigates the sources of
business cycle fluctuations through the lens of a
neoclassical growth model with an agricultural and
non-agricultural sector. The analysis finds some signs of
improvements, as labor market distortions have declined,
firms’ access to credit improved, and agricultural
efficiency rose over time. Nevertheless, challenges remain,
as gaps in labor and capital returns between agriculture and
non-agriculture remain large, efficiency in the
non-agricultural sector shows no signs of improvement, and
households’ access to finance has deteriorated. |
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