Spillovers of Global Shocks Over Caribbean Countries: So Large That There Is Little Room to Maneuver: An Impulse Response Analysis

Caribbean countries are many times described as "vulnerable" in that they are highly prone to shocks such as food price hikes, natural disasters, and other global phenomena. This policy brief discusses a particular type of "vulnerability", namely, the impact of the trading partner, output changes, and commodity price changes on their GDP growth. The analysis is based on a cointegration analysis that shows why much of the growth trend of these countries can be explained by one or two variables: a commodity price and trading-partner GDP. We also discuss how that effect unfolded during the recent global recession and what its consequent effect was on the fiscal accounts. In addition, we consider how output could change going forward if such a global shock were to reoccur.