Exploring Latin America's responses to the great recession

Abstract

Latin America's strong performance following the Great Recession has surprised analysts and the media alike. The region not only outperformed other economies in the same period, but displayed far better results than those obtained in past crises. With few notable exceptions, most academic work that followed attributed this success to good policymaking prior to the crisis, in particular the accumulation of international reserves and a reduction of external debt. This paper challenges this conventional wisdom by exploring the substantial role of luck|an international scenario marked by an unprecedented commodity boom coupled with very low international interest rates|in explaining this phenomenon. I do so in two ways; rst, by showing that the outstanding performance of the region was largely con ned to its low-savings commodity-exporting economies, which were the ones particularly favoured by international conditions. Second, by demonstrating that these countries' excellent performance persevered only as long as favourable conditions persisted, but was reversed throughout the region with the end of the commodity supercycle and increased prospects of rising U.S. interest rates.