Business Cycles Accounting for Paraguay
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World Bank, Washington, DC
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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.
Palabras clave
MONETARY POLICY, CAPITAL MARKETS, PRODUCTION, MARKET DISTORTIONS, LAGS, INTERNATIONAL CAPITAL, FOREIGN INVESTORS, INCOME, INTEREST, EXPECTATIONS, ASSET PRICES, INFLATIONARY EXPECTATIONS, EMERGING ECONOMIES, INTEREST RATE, REAL GDP, EXCHANGE, DISCOUNT RATE, INSURER, LIQUIDITY, DEVELOPING COUNTRIES, EXPORTS, MARGINAL PRODUCT, POLITICAL ECONOMY, DEVELOPING ECONOMIES, PORTFOLIO, FISCAL POLICY, WORLD DEVELOPMENT INDICATORS, WELFARE, WORLD MARKETS, VARIABLES, DOMESTIC PRICE, FACTORS OF PRODUCTION, CAPITAL STOCK, PRICE, TAX, INPUTS, PAYMENTS, WEALTH, SAVING, PUBLIC REGISTRY, AGRICULTURAL OUTPUT, TRENDS, CENTRAL BANK, DEVELOPMENT, LABOR MARKET, CAPITAL ALLOCATION, FISCAL POLICIES, INFLUENCE, MARGINAL PRODUCTS, VOLATILE ECONOMIES, TRADE BALANCE, TOTAL FACTOR PRODUCTIVITY, SAVINGS, PRODUCTION STRUCTURE, DEVELOPMENT ECONOMICS, LOW-INCOME COUNTRIES, VOLATILITIES, LOW INTEREST RATES, INTEREST RATE SHOCK, PRODUCTIVITY, INTEREST RATES, INTEREST RATE SHOCKS, MIDDLE-INCOME ECONOMIES, NATURAL DISASTERS, NET EXPORTS, DEBT, FINANCIAL FLOWS, OPEN ECONOMY, REAL INTEREST RATE, GLOBAL BUSINESS, CAPITAL STOCKS, INVENTORIES, UTILITY, AVERAGING, GROSS DOMESTIC PRODUCT, COMMODITY PRICE, ECONOMIC RESEARCH, TAXES, INVESTMENT DECISIONS, EQUITY, INFLATION EXPECTATIONS, INVESTORS, PRODUCTIVITY GROWTH, CONSUMPTION, HUMAN CAPITAL, CAPITAL, WAGES, VOLATILITY, MARKET CONDITIONS, FUTURE, VALUE, PRODUCTION FUNCTIONS, CREDIT, FORMAL ANALYSIS, MACROECONOMICS, DEMAND, OUTPUT GAP, UTILITY FUNCTION, WORKING CAPITAL, ECONOMIC FLUCTUATIONS, ECONOMY, AGRICULTURE, CONSUMERS, CAPITAL FLOWS, PRICE FLUCTUATIONS, TAX RATES, SHARES, FINANCIAL INFLOWS, BENCHMARK, ECONOMIC THEORY, PAYROLL TAXES, CREDIT BUREAU, PRODUCTION FUNCTION, ECONOMICS, CAPITAL RETURNS, OUTPUT, PRICE MOVEMENTS, ENFORCEMENT, BUSINESS CYCLES, ECONOMIC DEVELOPMENT, TRADE, LOW-INCOME ECONOMIES, GDP, GOODS, THEORY, EMERGING ECONOMY, GROWTH RATE, INVESTMENT, SHARE, DEVELOPING ECONOMY, AUTOREGRESSION, FINANCIAL MARKETS, CAPITAL INFLOWS, GINI COEFFICIENT, ECONOMIC TIME SERIES, NOMINAL INTEREST RATE, RAPID GROWTH, COMMODITIES, EXCHANGE RATE, AVERAGE PRODUCTIVITY, COMMODITY PRICES, OPEN ECONOMIES, LIQUID ASSETS, COMMODITY, STICKY WAGES, POSITIVE EFFECTS, MIDDLE INCOME COUNTRIES, SMALL ECONOMY, GLOBAL ECONOMIC PROSPECTS, PRICES, DEVELOPMENT POLICY