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Regional Integration in Latin America - The Pacific Alliance a Way Ahead
English, Reports, Spanish

Global Spillovers and Coordination of Monetary and Macro-Prudential Policies in the Pacific Alliance Economies

Abstract:
In recent times the Pacific Alliance member economies (Chile, Colombia, Mexico and Peru) have managed to achieve trade integration, have made remarkable progress in their financial integration and have withstood the spillovers from the global shocks that had risen from abroad.

But, would the Pacific Alliance members be better off if they coordinated their monetary and macroprudential policy responses when facing the spillovers from these external global shocks? To test this, we propose a framework based on the Global Projection Model (GPM) of the International Monetary Fund (IMF), which features real and financial linkages between countries.

We introduce additional equations for terms of trade, commodities, portfolio inflows, foreign direct investment inflows, lending, lending interest rates and macroprudential policy with the objective of having a more comprehensive model. In the no-coordination case, we consider six countries: the four-member economies of the Pacific Alliance acting separately, China and USA. The coordination case involves three parties: the Pacific Alliance acting as one country, China and USA. In this case of full coordination among Pacific Alliance countries, the members act as if they followed the same monetary and macroprudential policies. We find that upon global shock spillovers coming from China and the United States, the Pacific Alliance members show lower aggregate welfare losses acting as a bloc rather than behaving separately.

Resumen:
Recientemente las economías que integran la Alianza del Pacífico (Chile, Colombia, México y Perú) han logrado alcanzar la integración comercial, han hecho avances en su integración financiera y han podido sobrellevar los efectos colaterales causados por los choques globales que han occurido fuera del bloque.

Pero, ¿estarían los miembros de la Alianza del Pacífico mejor aún si ellos coordinaran sus respuestas de política cuando enfrenten choques globales externos? Para responder esta pregunta se propone un marco basado en el Global Projection Model (GPM) del Fondo Monetario Internacional (FMI), que cuenta con vínculos reales y financieros entre países. Se consideran ecuaciones adicionales de términos de intercambio, commodities, flujos de cartera, flujos de inversión directa extranjera, créditos, tasas de interés de créditos y política macroprudencial con el objetivo de tener un modelo más comprensivo. Se encuentra que ante choques globales que provienen de China y los Estados Unidos, las economías de la Alianza del Pacífico están generalmente mejor cuando coordinan sus respuestas de política que cuando no lo hacen.

Authors: Zenon Quispe, Donita Rodriguez, Hiroshi Toma and Cesar
Vasquez
Spanish Title Choqyes Externos y Coordinación de Políticas Monetarias y Macroprudenciales en las Economías de la Alianza del Pacífico.
Full document: (English) 2017, Quispe et al, Global Spillovers and Coordination of Monetary and Macroprudential Policies in the Pacific Alliance Economies
(Spanish) 2017, Quispe, et al, Choques Externos y Coordinación de Políticas Monetarias y Macroprudenciales en las Economías de la Alianza del Pacífico

February 11, 2016by Ana Maria Palacio

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Hello my name is Ana Maria Palacio. I have a PhD from the University of Melbourne. This blog is about my thesis project, the Pacific Alliance.

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