info:eu-repo/semantics/workingPaper
Time changing effects of external shocks on macroeconomic fluctuations in Peru: empirical application using regime-switching VAR models with stochastic volatility
Autor
Rodríguez, Gabriel
Chávez, Paulo
Institución
Resumen
This article quantifies and analyzes the evolving impact of external shocks on Peru’s macroeconomic fluctuations in 1994Q1-2019Q4. For this purpose, we use a group of models with regimeswitching time-varying parameters and stochastic volatility (RS-VAR-SV), as proposed by Chan
and Eisenstat (2018). The data suggest a model with contemporaneous coefficients and constant lags and intercepts, but with regime-switching variances; and point to the existence of two
regimes. The IRFs, FEVDs, and HDs show that: (i) China growth shocks have a higher impact
on Peru’s output growth (around 0.8%); (ii) financial shocks contract domestic output growth
by 0.3% and domestic monetary policy is synchronized with Fed rate movements; (iii) external
shocks explain 35% and 70% of output fluctuations under regimes 1 and 2, respectively; and (iv)
China growth shocks contributed 1.0 p.p. to the 1.1-p.p. increase (around 89%) in Peru’s output
growth between regimes 1 and 2. Additionally, we validate these results by performing seven
robustness exercises consisting in changing priors, reordering variables, changing variables, and
using four different specications for the baseline model.